Thursday, November 29, 2012

Argentina Sovereign Debt Issues/Bought 100 of the CEF DPG at $17.3/Pared Trade: Bought 50 of the Bond CEF VGI at $18.52 & Sold 100 SGL at $10.71-Roth IRA/Bought 300 of the Canadian ETF XTR:CA at 12.27 CADs-Toronto Exchange/Bought 50 of the Stock ETF EELV at $27.2/ SOLD 50 of 100 FAM at $17.9

I am going to change the publication date of my weekly post to whenever I finish writing it but no later than Friday. Once I finish writing the post, I do not see any reason to wait until 5:30 A.M. on a Friday to publish it. I would have finished writing this post yesterday except the OG bought a new toy, an IPad, and he had to play with it yesterday.

Big Picture Synopsis:

Stable Vix Pattern (a bullish cyclical pattern)
Short Term: Slightly Bearish
Intermediate and Long Term: Bullish

Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish 

In an interview with Morningstar, Chuck Royce opines that bonds are in a bubble, and stocks are in for better, more normal times. The bond bubble is similar to the 1990s growth stock bubble in terms of "how much damage it will do to the people participating in it in the next five years".

A downbeat long term outlook for stocks was delivered by Pimco's Bill Gross and Mohamed El-Erian, as summarized in Paul Farrell's MarketWatch column and in a recent Time magazine article referenced by Farrell and available only to Time magazine subscribers.


I mentioned previously that Terex was likely to redeem its 2017 8% senior subordinated bond. After examining the prospectus, I mentioned that the optional redemption price was 104 for the year starting after 11/15/2012. Item # 6 Terex Bond Redemption (11/9/12 Post)

I received an email notice that Terex will in fact redeem this bond on 12/26/12 at 104 plus accrued interest.

I own just 1 bond: Bought: 1 Terex 8% Senior Subordinated Bond Maturing on 11/15/2017 at 96.947 (August 2011)

1. Bought 100 of the Stock CEF DPG at $17.30 (see Disclaimer):

Company Description: Duff & Phelps Global Utility Income Fund (DPG) is a leveraged closed end investment fund. 

I elected to buy this fund after reviewing a recent article titled "Looking for Income? Try This Global Utilities-Focused Fund" published by Morningstar.

SEC Form N-Q for the  Duff & Phelps Global Utility Income Fund (list of holdings as of 7/31/12)

This form shows the following weightings (131.6% with leverage): Electric, Gas & Water=53.2%; MLPs=33.3%; Telecommunications=45.1%. 

Last SEC Filed Shareholder Report: Duff & Phelps Global Utility Income Fund (4/30/12). This report shows the net operating expenses without leverage at 1.29% and the gross operating expenses at 2.09%. As of 4/30/12, the fund had net unrealized appreciation of $51.286+M (page 17)  

Morningstar Page for DPG (shows some return of capital)

DPG Page at the CEFA 

The average 6 month discount is -5.03% according to Morningstar.  

Trading History: NONE-First Buy

Rationale: (1) Dividend and Some Appreciation Potential: At a total cost of $17.3, the dividend yield is about 8%.

DPG has been paying a quarterly dividend of $.35 per share. Dividends-Duff & Phelps Global Utility Income Fund

The fund declared a 4th quarter dividend of $.35 per share. Duff & Phelps Closed-End Funds Announce Dividends 

(2) Recent Decline in Price and Expansion of Discount: For reasons that can best be characterized as irrational, utility CEFs will often trade at a premium to their net asset value. Individual investors are generally responsible for that pricing, as they focus on just two words-dividend and utility. 

A prime example of irrational pricing is presented by the Gabelli Utility Trust (GUT), which supports the dividend mostly by returning the investor's own capital back to them in the guise of a dividend. When I purchased shares in DPG on 11/21/12, GUT had closed at a +22.88% premium to its net asset value per share on 11/20/12. According to Morningstar, as of 11/21/12, GUT's average 6 month premium was +42.48% and +39.99% for three years. Possibly some investors are starting to see the light given GUT's price decline since August.  GUT Historical Prices 

Another CEF focusing on utility stocks, Reeves Utility Income (UTG), closed at -2.06 discount to its $23.84 net asset value per share on 11/20/12. Back in 2010, I mentioned that Bill Gross had recommended UTG: Item # 2 Stocks, Bonds & Politics: Bill Gross and Utility Funds (February 2010 Post)

DPG is at least selling at a greater discount to net asset value per share than UTG:

11/16/12 (Friday)
Net Asset Value Per Share= $18.06
Market Price = $17.43
Discount: -3.49%

11/20/12 (Tuesday:Day Before Purchase)
Net Asset Value Per Share: $18.39
Market Price: $17.26
Discount -6.14%

11/21/12 (Day of Purchase)
Net Asset Value Per Share=$$18.43
Market Price= $17.33
Discount= -5.97%
Discount at $17.3= -6.13%

Net Asset Value Per Share= $18.68
Market Price = $ $17.56
Discount= -6%

Net Asset Value Per Share = $18.96
Market Price= $17.59
Discount= -7.23

The last ex dividend date was on 912/12. DPG closed at $18.8 on 9/13/12, so the price has declined significantly to my purchase price at $17.30 and a lot of that decline has occurred shortly before the next ex dividend. DPG Historical Prices


(1) Unpredictable Herd Behavior Resulting in an Expansion and Contraction of the Discount to Net Asset Value: I have repeatedly discussed this topic. The most recent discussions are in the last two posts.

(2) Normal Risks Associated with Stocks and MLPs 

Future Buys:  I am not likely to average down unless the discount exceeds 10%.

I will periodically buy Utility ETFs but lack any enthusiasm for pure utility funds selling at net asset value. The ETFs do not use leverage. {See, e.g. Bought 100 XLU at $29.14 (November 2009); Bought: 50  100 XLU @ 30.83 (November 2010)}.  I no longer own that ETF. (Sponsor's webpage: XLU - Utilities Select Sector SPDR Fund; expense ratio .18%; 33 stocks; Closing Price 11/2/812: XLU: 34.75 +0.14).

Vanguard also has a broader ETF in this space with a current .19% expense ratio: Vanguard Utilities ETF (VPU) (79 stocks)

2. Bought 300 of the Canadian Balanced ETF XTR:CA at 12.27 CADs (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Company Description: iShares Diversified Monthly Income Fund (XTR) is a balanced Canadian ETF. The shares are available on the Toronto exchange.

Sponsor's webpage: XTR Overview - iShares ETFs The fund was ex dividend for its monthly distribution the day after my purchase.

XTR is a fund of funds. The weighting is titled toward bonds. I took a snapshot of the fund's holdings as of 11/21/12, the day of my purchase:

The total expense ratio, which includes acquired fund fees, is .57%.

I calculated the weightings as follows:

Bonds: 60.55%
Utility Stocks: 9.84%
REITs : 8.61%
Preferred Stock: 6.11%
Common Stock-Dividend: 14.85%

Trading History: I have not yet sold any shares. I have discussed my purchases in these posts:

Bought 300 of the Canadian ETF XTR at 12.34 CADs  (3/9/11 Post)
Bought 200 XTR:CA at 11.9 CADs (October 2011 Post)

Rationale: (1) To Receive An Income Stream on My Canadian Dollar Position: With this kind of investment, I am simply attempting to generate some income on my Canadian Dollar position which would otherwise be earning nothing.  

The fund was ex dividend for its monthly distribution of CAD $.06 on 11/22/12, the day after my purchase.  I will be paid in Canadian dollars after a 15% withholding tax. XTR Distributions

The current yield is about 5.87% at a total cost of CAD $12.27.

Future Buy-Sell: I am more likely to sell my highest cost lot than to purchase more. The highest cost lot consists of 300 shares bought at 12.34 CADs.  I currently own 800 shares.


(1) Normal Risks Associated with Bond and Stock Funds: Since this fund is weighted in bonds, interest rate and credit risks are probably the dominant risks. The ownership of one junk bond fund adds more credit risk than the investment grade bond funds.

I would hope that any reader of this blog thoroughly understands the interest rate and credit risks associated with bonds and bond funds.

Item # 1 Stocks, Bonds & Politics: Managing Interest Ra
Bond and Bond Funds
Risks of Investing in Bonds
Historical Returns on Stocks T. Bonds and T Bills Since 1928
Item # 2 Stocks, Bonds & Politics: Interest Rate Risks- Bonds
Stocks, Bonds & Politics: For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards
Item # 1 Stocks, Bonds & Politics: Managing Interest Rate Risk
Smart Bond Investing—Introduction - FINRA

One way that I manage interest rate risk is to invest in Canadian Bond ETFs that use a short term (1-5 year) ladder approach for high quality Canadian government and corporate bonds. iShares 1-5 Year Laddered Government Bond Index Fund, CLF- (TOR)(700 Shares); iShares 1-5 Year Laddered Corporate Bond Index Fund, CBO - (TOR) (300 Shares).

(2) Currency Risks Associated with Canadian-USD Conversion Rates: Since I am a long term holder of Canadian Dollars, I am willing to accept that the near and intermediate term risks associated with a possible slide in the CAD versus the USD. An investor with a short term focus could easily lose money in this type of fund simply due to currency conversion.

XTR Fund Quote - (TOR)

3. Bought 50 of the Stock ETF EELV at $27.2 (see Disclaimer): 

Company Description: The PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) is a new offering from PowerShares. Several fund companies are offering ETFs that focus on stocks with low volatility. Generally speaking, stocks with lower volatility would include consumer staple, utility, telecommunications and financial companies.

This particular fund is based on the S & P index that consists of the 200 least volatile stocks in the S & P Emerging BMI Plus LargeMid Cap Index

Sponsor's website: EELV | S&P Emerging Markets Low Volatility Portfolio

The net expense ratio is currently .29% as a result of a temporary .16% fee waiver. This is a new fund.

S&P Emerging Markets Low Volatility Portfolio Holdings

IShares also has a new fund in this area: iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV) It has a lot more assets and more stocks: (EEMV): Holdings - iShares

Sam Stovall discusses low volatility ETFs in this Forbes interview.

The two low volatility ETFs for emerging markets are discussed in this  ETF Trends article.

The WSJ published an article about these new low volatility performance, noting that several recent studies that less volatile stocks beat volatile ones over time.

I also own a low volatility fund for U.S. stocks: Item # 3 BOUGHT 100 of USMV at $29.29 (sponsor's webpage: iShares MSCI USA Minimum Volatility Index Fund (USMV) (expense ratio .15%)

Trading History: None


(1) The Next Super Cycle: The following observations are not insightful but merely summarize an obvious point. I have discussed this topic many times. One of my nephews, who will soon graduate from college and start to work for Accenture, raised this point in a recent telephone call with the OG, as if he had discovered the wheel or how to make fire.

The world is undergoing an immense and important change. A new Super Cycle has already emerged or will soon bloom.

Simply put, middle class consumers in emerging market countries, who have not yet discovered the credit card, are growing at an extremely rapid rate and will become the dominant demand force in the decades ahead. Their spending power will ultimately dwarf the over-leveraged consumers in slow growth developed countries, particularly those whose governments at all levels are drowning in debt and unfunded liabilities for entitlement programs (healthcare, pensions, etc.)

The only question is timing. When will growth in emerging markets become unhinged from developed markets? In the early stages of the Super Cycle, meaning the first decade or so, the world economy will still need a lift from the U.S. (2% real GDP growth) and far less drag from Europe.

I have referenced previously several brokerage reports on this new Super Cycle. This kind of event marks a major transition that propels worldwide economic growth significantly above an average level of growth. In the current Super Cycle, that growth will not be originating from the U.S. and Europe, but in Asia outside of Japan, India, and some countries in South America and Africa.

One recent report about this new cycle was published by Standard Charter and was aptly titled "The Super Cycle Report". It is long at 152 pages. This link will cease to work after a brief period: Super-cycle Report-12/11/2010.pdf If that link does not work, then a google search with these terms will bring this report up: super cycle standard charter

Over the past few years, the emergence of this new Super Cycle has been masked to some degree by the problems in the U.S. and Europe that result from too much debt, as well as  slow growth likely to be the "new normal" for decades. Consumers in the U.S. and Europe will become progressively less important to world economic growth each year. The ongoing de-leveraging process among governments and consumers in developed countries accustomed to living far beyond their means will likely be a major drag on growth for a considerable period of time.

See also: Goldman Sachs Global Economic Paper No: 170: The Exploding World Middle Class and /china middle class

There are a large number of American and European multinational firms that will benefit from this Super Cycle since they have large and growing operations in emerging markets. Several consumer staple companies fall into that category.

The purchase of the ETF EELV is just one way to gain exposure to companies located in emerging markets that may benefit from this trend.  For example, if I wanted to buy an American beer company that has significant operations in emerging markets, which one would I buy? The major beer companies are now foreign: Anheuser-Busch Inbev SA; Companhia de Bebidas das America; and SABMILLER Molson Coors (TAB) is headquartered now in the U.S. (primarily U.S. and Europe)


(1) Positive Correlation with the S & P 500 with a Higher Beta: Based on recent history, a U.S. investor would not insulate their stock portfolio from downdrafts by owning emerging market stocks. Emerging market stocks have had a high positive correlation with the S & P 500's performance except with a much higher beta. During a downturn in U.S. stocks such as the one recently experienced during the Dark Period, the presence of emerging market stocks in the portfolio would simply add to the pain. A portfolio of the least volatile emerging market stocks may have a lower beta but still positively correlated with the S & P 500 and more volatile too. This may change.

The primary reason is that emerging markets still depend on the U.S. and Europe markets for growth. As those emerging markets start to generate more internal demand and growth, their reliance on growth in the developed markets will shrink and the historic correlations may gradually change.

There are generally cogent reasons why two asset classes have high positive or negative correlations. Those reasons are not immutable and are subject to change. Frequently, an advisor or an investor will simply assume a correlation will exist into the future, based simply on recent history, without understanding the reasons for that correlation. If those reasons cease to exist or undergo some fundamental change, the correlation will change. The world is not a static place.

The Japanese stock market performed much better than the U.S. market during the late 1960s and 1970s. An American investor could pick up some negative correlation by investing in Japanese stocks. This was a positive negative correlation for an investor's overall returns since U.S. stocks were in a long term secular bear market and Japan was still in a secular bull market.

Japan's Stock Market 1965-1981
For the next few years,  I would anticipate emerging stock markets to remain highly correlated with U.S. stocks with a higher beta. Consequently, a correction in the U.S. stock market would be magnified in emerging markets.

Starting in a few years, I would anticipate more decoupling in the correlations between several emerging stock markets and the U.S. market.

(2) It Remains to Be Seen Who Will Be The Victors: While emerging markets will be growing much faster than developed countries, this does not necessarily mean that emerging stock markets will necessarily follow in tandem. American and European multi-nationals with abundant financial resources may do better. In other words, the dominant victors may be companies like Nestle, Unilever, Coca Cola, IBM, Apple and General Electric rather than the names owned by EELV, most of which are unknown to me.

China's growth story is well known, though some pundits believe China is not telling the truth about its growth rates. Yet, the Shanghai Composite Index has performed miserably compared to the S & P 500 over the past five years. CHINA SHANGHAI COMPOSITE INDEX Index Chart {However, the primary reason for that recent underperformance was the natural corrective action in the SSE's parabolic rise from 1600 in 2006 to over 5800 in 2007.}

There are other reasons why emerging market companies may not perform well. The most important issue is the differences in laws and governments compared to most developed countries, particularly as those law relates to protections for companies and their shareholders.

Just as an example, Brazil recently told its private electric utility companies to reduce rates by more than 20% or lose their concessions.  NBC News; The U.S. government does not have that power. If the U.S. government had the right to put the electric utility industry out of business or make them provide service at less than cost, then no sensible investor would want to invest in U.S. electric utility companies. I have also highlighted another issue involving Vale and Brazil and recent actions of Argentina's government. And what would happen if China's government changed course from current policies that allow for private enterprise?

I mentioned above that "most developed countries" have laws and courts that provide meaningful legal protections for shareholders and companies against the government. There are exceptions.

France is an example of a government that is trying its best to imitate the worst features of a Latin American government. France's new Socialist President, Francois Hollande, told the President of ArcelorMittal that its operations in France could be nationalized unless Arcelor agreed to keep 629 employees out o f the 20,000 employed by Arcelor in France. Hollande recently proposed a 75% tax rate for the "super rich"  The country also has a 35 hour work week. France's jobless rate recently hit a 14 year high.  Historically, France's unemployment rate has averaged 9.43% between 1996 to 2012. {One positive influence of the GOP is to restrain the strong tendency of Democrats to move the U.S. toward the economic models followed by France, Greece and Italy. As noted previously, I have voted for both republican senators from Tennessee-Corker and Alexander. I only sound like a liberal to pseudo conservatives}

When you focus on the governments in most emerging market countries, rather than just the companies, the added risk is stark.

Future Buys: I will consider averaging down by buying another 50 shares at below $25.

EELV Fund Quote

4. Pared Trade Bought 50 of the Bond CEF VGI at $18.52 and Sold 100 SGL at $10.71 -ROTH IRA (see Disclaimer): The VGI was a marginal buy:

2012 ROTH IRA Bought 50 VGI at $18.52

Company Description: The Virtus Global Multi-Sector Income Fund (VGI) is a new closed end bond fund. The sponsor is Virtus Investment Partners (VRTS) which calls itself a "distinctive boutique" of investment managers. The firm was created after a reverse merger with Duff & Phelps in 1995 and was owned by the Phoenix Companies (PNX) until it was spun out to PNX's shareholders in 2008. 2011 Annual Report Form 10-K

VGI Page at the CEFA

VGI Page at Morningstar

Sponsor's webpage: Virtus

Virtus Global Multi-Sector Income Fund: SEC Filed Shareholder Report (P.E. 6/30/12). As shown in that report, the fund is leveraged. Note 8 at page 26 shows that the borrowings are short term (31-32 days) at 1.13+-1.14+%.

Operating expenses, which excludes interest expense, as a percentage of assets is 1.8%, viewed as too high even for an international bond fund. The expense ratio alone makes this investment borderline at best. A similar bond ETF, FAM, has a 1.69% expenses ratio excluding interest costs and that is viewed as too high too. First Trust/Aberdeen Global Opportunity Income Fund (FAM)

The IPO price was $20 per share. Registration Statement Virtus Global Multi-Sector Income FundI would never buy a CEF in an IPO. Almost without exception, the price will decline to a discount to net asset value per share after the IPO. The proceeds to the fund was $19.06 per share, so any buyer of the IPO would in effect be paying a premium to net asset value.  

11/23/12 Data
Net Asset Value Per Share= $19.79
Market Price= $18.63
Discount -5.86%

11/26/12 Data (day of purchase)
Net Asset Value Per Share= $19.81
Market Price= $18.56
Discount= -6.31

Net Asset Value Per Share= $19.89
Market Price= $18.48
Discount= -7.09

Net asset value can be found at the sponsor's website and the Closed-End Funds section of the WSJ under "other domestic taxable funds".

Trading History: None for VGI. The SGL trading history is discussed in a recent post.


(1) Monthly Dividend Income: The sole reason for the VGI purchase is to generate tax free income in the Roth IRA. The dividends would be taxable at my highest marginal rate if I had purchased the shares in a non-retirement account of course. Since the dividends paid by this fund are not classified as "qualified", it makes more sense for me, as an American taxpayer, to buy the VGI shares in the ROTH IRA for the usual reasons.

Dividends are paid monthly. So far, it appears that the dividend is being supported in part by a return of capital based on data appearing at Morningstar. That accounting issue does not exist for shares held in one of my IRA accounts.

The current monthly rate is $.117 per share. Virtus Global Multi-Sector Income Fund Declares Distributions The next ex dividend date is 12/11/12.

If that monthly rate continues for an entire year, which is in no way assured, the dividend yield at a total cost $18.52 is about 7.58%. I would like to collect at least 12 monthly dividends and to sell the position for any profit. Ideally, I would like to make a profit of 2.42+% annualized on the shares in order to bring my total return up to 10% or higher tax free. After commissions this later goal would require a sales price of at least $19.26 in one year.

Money will double in about 7.2 years before taxes at 10%. Estimate Compound Interest

Another reason for buying this fund is primarily psychological. If I have an urge to sell a multi-sector bond fund, that desire may be satisfied by selling VGI rather than the lower cost multi-sector bond CEF ERC.

2. Rationale for the Swap: The rationale for the pared trade was to harvest a quick profit on the SGL plus one monthly dividend payment, to acquire a slightly higher yield with VGI and to lessen my exposure to Venezuela and Argentina sovereign debt. As of 8/31/12, SGL had a 3.99% weighting in Argentina's sovereign debt, List of Holdings-SEC Form N-Q

I made a quick profit on those SGL shares and will receive one monthly dividend.

SGL Data for 11/28/12:
Net Asset Value Per Share= $11.61
Closing Market Price= $10.71
Discount= -7.75%
{Discount at $10.16 Purchase Price on 11/15/12= -12.64%}

In the risk section for a recent purchase of a similar bond CEF FAM, I mentioned its exposure to Venezuela sovereign debt which makes me nervous. Bought 50 FAM @ 16.79-ROTH IRA

SGL had less exposure to Venezuela than FAM (uncomfortably high at a 4.2% weighting), based on their last respective SEC filed shareholder reports. FAM SEC Filed Shareholder Report for the period ending 6/30/12 FAM had less exposure to Argentina's sovereign debt at 1.7% as of 6/30/12 compared to SGL's uncomfortable 3.99%.

I am now adding exposure to Argentina's sovereign debt to what I would call a heightened level of risk. I view Argentina's politicians to be among the worst in the world. I would never expect them to make decisions that would further the long term interests of their country. There is not question in my mind that Argentina's economic progress has been severely retarded and damaged by their political class. I have made this sentiment known in prior posts. (e.g. Item # 3 BOUGHT 40 GGAL at $6.72-LT Category)

I became even more concerned about Argentina's debt after reading several articles this week about U.S. court decisions that could cause Argentina to default again. A good discussion of the legal issue is contained in this NYT column written by a Ohio State law professor. While the situation  is still fluid, and Argentina may not default again, another default by this government at this time would likely cause a negative reassessment of sovereign debt risks and a downdraft in prices for some emerging market sovereign debt obligations in addition to Argentina's debt.

The legal issue is whether Argentina has to pay $1.3 to American hedge funds and others who still own debt that was never exchanged into new debt after Argentina's $80B debt  default in 2001. Basically, that government in effect forced bond owners to exchange old bonds for new ones at 25 to 29 cents on the dollar. Some owners refused to make the exchange and have been trying to collect on the old bonds for over a decade.

Based on recent decisions by a U.S. Federal District Court and the U.S. Second Circuit Court of Appeals, Argentina is being required to pay the old bond owners as a condition for paying the new bond owners under what is known as a  pari passu clause which I have discussed in other contexts (e.g. the government's equity preferred stock issue under TARP was in pari passu with equity preferred stock sold to the public, so that the bank had to pay both or neither-Item # 7 Stocks, Bonds & Politics Bought 50 ZBPRB in Roth at $19.9; the same type of discussion occurred in connection with the European hybrids: e.g. Stocks, Bonds & Politics: Priority of Aegon Hybrids)

Understandably, Argentina's debt was downgraded earlier this week by Fitch, noting a "probable" default. S&P had previously downgraded Argentina's debt after the second circuit's decision. (copy of court decision:  ‎ opn.pdf I was not aware of this issue until Wednesday of this week.

On Wednesday, the Second Circuit temporarily stayed a District Court's order, until at least 2/27/13, that would have required Argentina to pay the owners of the defaulted bonds next month.  The Appeals Court will hear oral arguments on Argentina's emergency appeal on 2/27/13: MarketWatch; Bloomberg.

Risks: The VGI expense ratio is a major negative. I have discussed the other risks of bond CEFs in several recent posts. Item # 5 Bought 50 FAM @ 16.79-ROTH IRA; Items 1 & 2 Bought 100 SGL at $10.171-ROTH IRA/Bought 100 Shares of GDO at $18.9 (FAM and GDO currently use leverage) In addition to the normal risks associated with leveraged bonds funds that invest worldwide, this fund has a significant exposure to junk rated bonds that adds more credit risk than a fund weighted more heavily in investment grade bonds:  

Credit Ratings as of 9/30/12
As of 6/30/12, the fund had some exposure to the sovereign debt of Venezuela ($1.5M par value) and to the Argentinian Neuquén Province (page 7). I do not know enough about that province even to have an opinion about its creditworthiness. I would note that the largest exposure appears to be a PIK interest capitalization note issued by that province, and I detest that kind of security.

Future Buys: I will consider averaging down at less than $17.8. In order to average down on a leveraged bond fund, I would need to reasonably believe that a rise in interest rates is not yet on the near term horizon. If I still have a neutral outlook near term for bonds, an opportunistic purchase at a lower cost may make it easier to exit the position at a profit. However, given the drawbacks of VGI, I am not going to go over 100 shares.

I also own 550 shares of another multi-sector bond CEF, ERC, that is similar to VGI with a much lower expense ratio.  ERC Factsheet.pdf; Morningstar ERC Page. It remains to be seen whether the VGI managers can earn that differences with better selections.

VGI Stock Quote

5. Sold 50 of 100 FAM at $17.9 (see Disclaimer): I am only going to briefly discuss this trade. I sold the last FAM lot held in a taxable account. I recently bought 50 shares of FAM in the ROTH IRA after the shares underwent a fast downdraft in price as explained in Item # 5 Bought 50 FAM @ 16.79-ROTH IRA (11/16/12 Post).

It makes more sense for me to own this security in the ROTH IRA.

Another reason is to lighten my indirect exposure to the sovereign debt of Argentina and Venezuela. As of 6/30/12, FAM had a weighting of 1.7% in Argentina's sovereign debt and an uncomfortable for me 4.2% weighting in Venezuela's debt. Based on the recent legal developments, I am currently more concerned about Argentina than Venezuela but I would not personally own debt issued by either of those two countries.

Lastly, the discount to net asset value has contracted since my recent purchase in the Roth IRA. On 11/27/12, the net asset value per share was reported at $18.08, just 1% above the closing market price. I will frequently pare or even eliminate a bond CEF after such a narrowing accompanied by a rise in price.

11/28/12 Data: Date Sold
Net Asset Value Per Share: $18.12
Closing Market Price= $17.96
Discount= -.88

I realized a long term capital gain of $75.13 on the 50 shares sold plus about one year of monthly dividends:

2012 FAM 50 Shares (11/28) +$75.13
The preceding snapshot also includes a prior sell of 150 shares: Stocks, Bonds & Politics: Sold 150 of 200 FAM at $18.64 The 50 shares sold on 11/28/12 were bought at $16.08.

FAM Stock Quote

Politics and Etc.

1.  Science and Religion: According to a Gallup poll, 46% of Americans believe that God created man in his present form within the past 10,000 years. CNN noted that this number has been relatively unchanged since Gallup started to ask the question in 1982. For that 46%, scientific evidence contradicting their opinion will always be viewed as unreliable and false. Human - Wikipedia 

That poll result brought to mind a scene from Inherit the Wind (1960 film), where the character patterned after William Jennings Bryan gives a befuddled defense of that less than 10,000 year claim under withering examination by Spencer Tracy whose character is modeled after Clarence Darrow. The film is inspired by the infamous 1925 Tennessee case known as the Scopes Trial, where a Tennessee teacher was charged with a violation of Tennessee's Butler Act, which prohibited the teaching of evolution.

2. Mark Rubio and Science: One of the shining new stars in the GOP is Marco Rubio, a Senator from Florida. As far as I can tell, he is a rising star in the GOP because he is photogenic, has a life story to tell, has become the "Crown Prince" of the Tea Party movement, and is potentially appealing to Latino voters given his Cuban ancestry.

{Rubio has portrayed his family as Cuban exiles, suggesting that his parents fled Cuba after Castro came to power. In reality, his parents moved to Florida 2 1/2 years before the Castro takeover After that fact was pointed out to him by the Washington Post and the St. Petersburg Times, PolitiFact, Rubio changed his Senate biography. The Washington PostTampa Bay Times}

GQ magazine asked Rubio a startling question in an interview, no doubt just to see how he would respond. How old do you think the Earth is, GQ asked him? Now, Mario did not want to answer that question when the GOP's base would have one answer and science another. After mentioning that schools need to teach the bible's version of how the universe was created, Mario finally stated that we will never be able to answer that kind of question; "it's one of the great mysteries". Earlier in his political career, Rubio compared the teaching of evolution to communist indoctrination.

Paul Krugman notes in his column, titled "Grand Old Planet" that Rubio is merely pandering to the "anti-rational mind-set" that has taken over the GOP. In this worldview, all forms of reliable evidence are rejected that are inconsistent with rigid beliefs. I have been noting that predisposition in multiple discussions since starting this blog in 2008.

Krugman refers to numerous studies that have connected personality types with political views. There is a strong tendency for "conservatives" to have "authoritarian" inclinations which requires the rejection of all evidence inconsistent with beliefs. I would disagree with Krugman's use of conservative. The conservatives who have those inclinations are mostly pseudo-conservatives like Rubio and most GOP politicians, rather than true conservatives.

Liberals can also reject evidence contradicting some of their beliefs but are far less likely to have a comprehensive and pervasive approach that rejects evidence that contradicts virtually any pre-existing belief.

The Republican Brain: The Science of Why They Deny Science- and Reality: Chris Mooney: Books

One of the monuments to delusion is the Creation Museum in Kentucky, where Adam and Eve are shown walking with the dinosaurs.

A humorous article about this museum was written by A.A. Gill and published in Vanity Fair.

3. Republican Senators McCain, Graham and Ayotte Continue to Harp on Susan Rice's Comments  About the Benghazi Attack-The Ongoing Problem of Simpletons Making Life and Death Decisions-GOP Politicians Have Slashed Spending for Embassy Security: The U.S. Ambassador to the United Nations, Susan Rice, apologized to the three GOP senators for calling the Benghazi attack the result of a spontaneous demonstration, WSJ & NYT, a statement made soon after the attack (9/11/12) based on incomplete information.

This apology was of course entirely unsatisfactory to Senators McCain, Graham and Ayotte who wish to create a controversy about Ambassador Rice's initial statement solely for political gain. It is impossible for me at least to comprehend any other reason for their constant harping about Rice's statements made on 9/16/12. Those three senators have never paid any attention to the remarks made by the late ambassador's father that it was "abhorrent" to the family that his son's death had become politicized, and there was not any doubt who was included in that remark.

McCain and Graham wish to focus on statements made by Ambassador Rice five days after the attack. I would suggest that everyone else focus on their support for the U.S. invasion of Iraq that has resulted in casualties numbering in the hundreds of thousands and will cost the U.S. taxpayers $1 trillion dollars before interest expenses on those borrowed funds for the remaining existence of the U.S.  Those two gentleman certainly lack perspective on what is important. Their simpleton mind set and overall lack of good judgment, shared by far too many in this country, explains why the nation falls so easily, over and over again, into long and costly wars that have no relationship to U.S. national security interests (Vietnam), or at best a marginal relationship based on actual facts (Iraq-not worth the costs and arguably will make the U.S. left safe).

It is really easy to mislead a majority of the American public into supporting those kind of conflicts, at least for the first few years, and it will happen again without question in my opinion.

A Pulitzer prize winning war correspondent, Thomas Ricks, was being interviewed by Jon Scott of Fox "News",  and was asked for his opinion on the Benghazi attack. He responded that Fox was hyping the incident and was operating as part of the Republican Party. The interview was immediately cut off after Ricks made that statement. I would not regard Fox as anything other than a publicity organ for the GOP. Is that even a debatable point? I don't think so. I would not call it a legitimate news organization.

After reading more about Rice's work experience, (e.g. Susan Rice - Wikipedia), she appears to be qualified to be Secretary of State, at least on paper, notwithstanding the grandstanding of GOP politicians.

She has impressive academic credentials, graduating from Stanford and receiving advanced decrees at Oxford as a Rhodes Scholar.

However, she is known to be abrasive at times and irritates some other diplomats by being too direct in her opinions, referred to as "sharp tongued" in a Reuters article. Diplomats are generally more cautious with their language.

A lot of people are equally or better qualified than her without having the Benghazi baggage for McCain and other partisans to latch onto.

Rice obviously had zero responsibility for the security at the Libyan embassy, which was inadequate based on the chaotic conditions in Libya and known risks.

If anyone is to blame for a lack of preparedness, it would be the Department of State official responsible for embassy security and/or certain members of that person's staff. State Department Website Re;  Securing Our Embassies Overseas; NYT. I have not seen those people identified by the press or the GOP attack dogs.  I suspect that they are career public employees.

It is odd and typically hypocritical that GOP politicians have repeatedly sought to slash funding for embassy security. The Hill So why not focus on that issue rather than than the incorrect statement made by Rice soon after the Benghazi attack?

I was surprised to see Maureen Dowd join in the Rice bashing, NYT.

Monday, November 26, 2012

Update for Lottery Ticket and Regional Bank Basket Strategies/Bought 30 Dell at $8.85/ Bought 50 TRMK at $21.54

An Update for he Lottery Ticket and Regional Bank Basket Strategies will be published on the last Monday of each month, as previously noted. And today is the last Monday in November.

An update for the  CEF Portfolio will be published randomly once a month, if I have sold or bought more than one position since the last update.

The stock discussions contained in this monthly post will be shorter and in a different format than the discussions in the weekly post. The primary purpose of this monthly post is simply to provide an update on two of my stock basket strategies.

The general format for the monthly post will be to provide a snapshot of the holdings in my Lottery Ticket and Regional Bank Basket Strategies. Prices will be the closing market prices for the previous Friday. I will then discuss one or two notable developments, and will also discuss purchases and sells that were not mentioned in the weekly post.

1. Current Holdings- Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post: While this strategy has generated a number of notable successes since its inception in 2009, I have been struggling as of late.

This strategy is primarily based on statistical criteria. All selections have certain common characteristics including a smashed share price and an ugly looking chart at the time of purchase. A technical analyst  would probably recommend a sell. Most will have price to sales and price to book ratios of less than 1.

The strategy is also subject to strict rules on the amount of each purchase. No more than $300 can be invested in one stock, plus any realized gains for that stock. And, after accumulating realized gains, I added a rule that the total amount invested may not exceed the total realized gains. These selections are called LTs for good reasons.

Total Realized Gains To Date: $11,588.63 Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post (snapshots provided)

Lottery Ticket Basket as of 11/23/12

A. RRST Dividend Declaration: RRsat declared a year end dividend of $.58 per share, payable on 12/13/12. The stock went ex dividend for that distribution on 11/19/21. The company reported third quarter net income of $2.4M or 14 cents per share. RRST ended the last quarter with $34.9M in cash, cash equivalents and marketable securities. I thought the dividend was noteworthy. Bought 50 RRST at $3.95-LT Category

RRST: 6.38 +0.02 (+0.31%)

B. Bought 30 Dell at $8.85 (Lottery Ticket Strategy: New Gateway Post)(see Disclaimer): After the close on 11/15/12, Dell reported third quarter results. The shares closed down 7.33% the next day, near a five year low.

Friday 11/16/12: DELL: 8.86 -0.70 (-7.33%)
Back to March 2009 Five Year Low: DELL Interactive Chart

2012 DELL 30 Shares at $8.85

Since I have no prior trading history in this security, or at least none in the prior decade, the maximum investment is $300 under the strict rules based LT basket strategy.

Tiernan Ray, the technology reporter at  Barrons, who wrote an earlier article about the PCs death titled "Bye-Bye, PCs", referred to the report as "deeply" disappointing. Ray notes that Goldman Sachs has a "sell" rating on the stock. He quotes a Loomis Sayles analyst, Tony Ursillo, who opined that a stock is never cheap when the fundamentals are bad. Those comments may prove to be perceptive or just another example of "group think".

A similar sentiment was expressed by a Bloomberg columnist who titled his article "Dell, HP Earnings Expected to Herald the End of PC Era"

Zacks called the third quarter report "dismal".

Okay, the PC is dead and the laptop is dead too. Just about everyone will start using mobile devices like the IPad.

Oddly given this death sentence, and even with the recession in Europe, the worldwide economic slowdown, and corporations being tight about IT budgets because they always find reasons to be fearful about something, worldwide PC shipments totaled 352+M in 2011. Gartner

IHC expects PC Shipments to contract slightly in 2012 to 348.7 million units.

Maybe the journalists and the herd are engaging in more than a bit of hyperbole. And, it remains to be seen whether the slowdown in the past few months was due in major part to customers postponing purchases until the Windows 8 launch. Still, it would be reasonable to claim that PCs are no longer a growth industry. Single digit growth may be a good year going forward.

The significant slide in the share price, the rampant negativity, and the usual statistical criteria made this stock eligible for a Lottery Ticket purchase.

A long term chart highlights Dell's woes: DELL Interactive Chart During the Crazy Period, Dell's stock peaked near $54 in March 2000. The stock thereafter slid to the high teens before rebounding to over $40 by early 2005. It has been downhill ever since, with brief rallies that petered out as the stock would fall in a series of lower lows.

Dell reported  third quarter adjusted E.P.S. of $.39 on a 11% decline in revenues to $13.72B, compared to the 2011 third quarter. The adjusted E.P.S. number was in line with estimates but the revenue number was well below the consensus forecast. GAAP E.P.S. was $.29. Cash flow for the quarter was reported at $1.3B.

Consumer revenues fell 23% and produced an operating loss of $65.
Public revenues declined 11% with $352M in operating income
Large enterprise revenue fell 8% with $325M in operating income

Dell highlighted these areas, apparently viewed by the company as the positive news:

"Strategic Highlights"
As noted in that strategic highlight section, Dell is more than a PC company (desktops and laptops). Without question, they will need to be much more than just a PC company going forward.

The company expects sequential 2% to 5% growth in the 4th quarter and an adjusted E.P.S. of at least $1.70 per share for 2012.

Earnings Call Transcript - Seeking Alpha

Lottery Tickets are frequently selected based on statistical criteria and a smashed stock price. While the prevailing opinion about the company expressed in the stock price may prove to be accurate, I am making a small contrarian bet that the market has overreacted to the downside. I may also see a ray of light at the end of a dark tunnel.

Key Statistics Based on $8.85 Purchase Price:
Forward P/E=5.06
Trailing P/E=6.03
Price to Sales=.28
Price to Book=1.63
Total Cash=$11.27B
Total Debt=$9.03B
Cash Per Share= $6.5
Dividend Yield= 3.3%

Two of the few positive opinions about Dell, based on valuation, is expressed in this Seeking Alpha article published before the earnings release. Another positive one, is this this article published by  Seeking Alpha after the earnings release.

Lastly, Dell appears to me to be a much better managed company than the Hapless Hewlett Packard whose Board must want to destroy the company since that is the only rationale explanation for their boneheaded acquisitions.

I did spend some time looking through Dells' product offerings: Dell Official Site

While I am not currently in the market for a Windows computer, I did check Best Buy's website and compared the pricing on Dell All-in-One computers, equipped with Windows 8 and the Intel i5 processor.  Windows 8 : All-in-One Computers - Best Buy Dell had one with a 23" touch screen; 1TB hard drive; and a 8GB of memory for $930. That was cheaper than an HP model, priced at $1000, that had the i3 processor, 6GB of memory and a 750GB hard drive. If I was going to buy one now, it would be the Dell computer for $930. I may buy one when Tennessee has its next sales tax holiday.

I am not pleased with the last Apple IMAC that I purchased which has issues. I carried it to the Apple retail store, to the so-called "genius bar", to fix an obvious fan problem and the genius told me nothing was wrong, though there is a problem without any question.

Apple's products have acquired a cult status which could reverse at any time, particularly when consumers realized that similar or even better products are available at far cheaper prices.

Friday's Close: DELL: 9.55 +0.49 (+5.41%)

C. Is Nokia Coming Back to Life: When buying 50 shares of Nokia at $2.88-LT Category, I did not express any confidence in Nokia's future. Instead, it was not crystal clear to me-yet-that Nokia was dead. I noted Mark Twain's statement that the reports of his death had been exaggerated. Mark Twain quotations - Death Most investors had already jumped shipped when I bought my lottery ticket at $2.88. Possibly, they may be end up being right, but it is worth $150 to me to bet against the herd.

Nokia stock has risen sharply over the past two trading days. Last Friday (11/23/12), Nokia shares rose   $.25 or  +7.55% to close at $3.56, so for now I am in profit territory. On the day before Thanksgiving the shares rose 12.2% and are up 33% since closing at $2.67 on 11/15/12. NOK Historical Prices

This price spike may be short covering. Even an optimist about NOK's shares would have to admit that some of that move was due to short covering.

Still, NOK has launched its new phones based on the Windows 8 operating system. Some reports claim that the phones are selling well so far. Tech Trader Daily -; Lumia 920 - Zacks.

A more negative view of Nokia's prospects is articulated by Tiernan Ray in his Barrons column.

2. Current Holdings-Regional Bank Basket Strategy: In this table, I am not tracking shares bought with dividends. The dividend yield shown in the table is calculated by Yahoo Finance at the closing price for 11/22/12 as shown in the table. The dividend yield at my cost would be higher most of the time, with a few notable exceptions such as FNFG and VLY.

I will generally keep my out-of-pocket exposure to this strategy between $40,000 to $50,000. Currently, I am below the lower end of that range based primarily on concerns about the headwinds impacting the entire banking sector including net interest margin compression resulting from the Fed's monetary policy and increased costs due to new regulations. 

Going forward for the next few months, I will likely add small odd lots to existing positions based on price targets formulated in part to reduce my average cost per share. For those familiar with the trading history connected to this strategy, I will frequently average down in small lots and sell the highest cost shares on pops. When that strategy is successfully implemented, I will generally be left with my lowest cost shares, while collecting the dividends and realizing a gain on the highest cost shares. This kind of strategy requires monitoring of the price in addition to the bank's earnings releases, plus patience.

Regional Bank Basket as of 11/23/12 (excludes reinvested Dividends)

A. Bought Back 50 Shares of Trustmark at $21.54 (TRMK)(see Disclaimer): Back in August 2010, I bought 50 share of TRMK at $19.57 and sold those shares at $24.7. (January 2012):

2012 TRMK 50 Shares +$240.57

That long term capital gain represented a 24.39% return on my total cost of $986.45 excluding dividends.

The share price has declined fairly rapidly, based on no company specific news, after closing at $25.30 on 9/24/12: TRMK Historical Prices With the decent dividend yield, potential for capital appreciation and a 14.86% share price decline in less than 2 months, I decided to buy the shares back at $21.54.

2012 TRMK Buy of 50 Shares at $21.54

TRMK is currently paying a decent quarterly dividend of $.23 per share which goes ex dividend on 11/28/12: TRMK Quote At that rate, the dividend yield at a total cost of $21.54 would be about 4.27%.

I have my typical observations about TRMK's dividend. It is a positive that Trustmark did not cut the dividend during the Near Depression or its aftermath. It is slightly negative, though understandable, that the $.23 quarterly rate has been in effect since the 4th quarter of 2007. And, it is positive that TRMK was raising the dividend annually between 1987-2007. Trustmark Dividend History I am interested in regional banks that maintained or increased their dividends during the Dark Period, since it says a great deal in my opinion about the competency and caution of its managers.

A few of the banks in my regional bank basket actually raised their dividend during the Near Depression period.  Given the severity of the collapse, I am not critical of those who simply maintained the dividends at pre-recession levels. A BAC shareholder is receiving just one cent per quarter-even now.

Trustmark is a bank holding company headquartered in Jackson, MS. Its principal operating subsidiary is the Trustmark National Bank (TNB). Through TNB and its other subsidiaries, TRMK has 170 branches located in Mississippi, Tennessee, Georgia and Florida. This bank has used the Near Depression to expand its geographic service area, one of the many criteria used to select banks for inclusion in the REGIONAL BANK BASKET STRATEGY.

Trustmark Profile Page at Reuters

2012 Third Quarter Earnings:

E.P.S. $.46 diluted, up from $.42 Q.E. 9/30/11
Net Interest Margin= 4.06%
Efficiency Ratio= 62.39%
NPL Ratio=1.38%
Coverage Ratio=174.1% (excluding impaired loans)
Total Risk-Based Capital Ratio=17.25%
Tangible Common Equity to Tangible Assets=10.13%
Tangible Common Book Value Per Share=$14.64
Common Book Value Per Share=$19.43
Return on Assets= 1.21%
Net Charge Offs to Loans=.31%

Sources:  SEC Filed Press Release; SEC Form 10-Q for Q/E 9/30/12 (capital ratios at page 39)

NPL's declined 19.1% from the prior quarter.

The bank did participate in TARP and repurchased the government's preferred stock in December 2009 after selling shares at $18.5: 10-Q at page 51

The regional bank basket strategy is likely to last for another 5-7 years.  Over the life of this strategy, which started in 2009, I anticipate that dividends will provide between 40%-50% of the total return.

Friday's Close: TRMK: 22.41 +0.74 (+3.41%) 

Wednesday, November 21, 2012

MOL/HP Board's Core Competency=Massive Destruction of Shareholder Value/Added 50 SWZ at $10.64/Bought 100 ADX at $10.14/Bought 100 SGL at $10.171-ROTH IRA/Bought 100 Shares of GDO at $18.9/Bought 50 CET at $19.04/Bought 50 PNNT at $10.2-ROTH IRA/Edison Mission

I have finished writing this post so I decided to go ahead and publish it, rather than wait until Friday.

Big Picture Synopsis:

Stable Vix Pattern (a cyclically bullish pattern)
Short Term: Slightly Bearish (potential downside range S & P 1250-1300)
Intermediate and Long Term: Bullish

Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish

Greenspan believes the markets will crater unless Congress deals with the out of control fiscal problem. And, he believes that the U.S. will be lucky just to get out of this pickle with only a "moderate recession" A recession would be a "cheap price" to pay to fix this problem. 

Doug Kass turned bullish last week and is confident that Congress and the President will reach a deal to avert the fiscal cliff.

The housing data continues in a positive direction. CNBC Video: Housing DataWSJ (existing home sales) The National Association of Homebuilders reported that its homebuilders confidence index rose to the highest level in six years. The government reported last Tuesday that October housing starts rose to the highest level in four years. The surge was due the construction of new buildings with five or more residences.


The price that Hewlett-Packard paid for Autonomy was indefensible and further proof of rampant incompetence at HP before the revelation of accounting irregularities (see discussion in earning release for the F/Y 2012 4th Q)

I mentioned in a post several months ago that a good chunk of the price paid for Autonomy would have to be written off. Stocks, Bonds & Politics: HP-Masters of Destruction (August 2012 Post)

Some of the details of the alleged fraud are briefly discussed in BloombergNYT and WSJ articles. One of the allegations involve the treatment of hardware sales (Dell computers) as software sales. In an article published by CNBC, an analyst claimed that he had pointed out that same irregularity in a research report published before HP's acquisition. Short sellers had highlighted other accounting issues including Jim Chanos.

Is Hewlett Packard simply trying to cover up for their own stupidity and the negligence of their highly paid advisors, who failed to dig deep enough after being provided a roadmap by analysts and short sellers?   Reuters pointed out that HP had 15 different legal, accounting and financial firms working on the "due diligence". A couple of competent advisors may have been sufficient to uncover what HP now calls fraud, assuming full access to the records, unless the fraud extended beyond mere verbal or written misrepresentations in response to questions, and included widespread fabrication of documents.

As one would expect, the former CEO of Autonomy, Mike Lynch, denied the charge. CNBC VideoWSJ The founder and former CEO of Autonomy claims that HP is covering up the mismanagement of Autonomy since its acquisition. His other line of defense is that the fraud would have to be an "elephant in the room" to have such an impact on Autonomy's value and consequently would have been discovered by HP's bevy of advisors if it existed.

It would be reasonable to expect that HP will now incur enormous legal fees pursuing the alleged perpetrators.  I would hazard a prediction that HP will end up paying its own shareholders far more than it will collect in lawsuits.

Even if HP's allegations prove true, and it is able to convince a jury that it reasonably relied on the alleged misrepresentations, the fact remains that HP clearly overpaid for this acquisition by several billion dollars, even without any accounting irregularity. HP would have taken a very large charge solely due to their own negligence in overpaying for Autonomy. And, there is likely to be at least some factual basis to the charge that HP mismanaged the company after acquiring it. I would just anticipate there would be an abundant amount of evidence supporting that assertion.

Oracle reportedly passed on the deal at $6 billion and HP's CFO told the Board that it was too expensive, according to Business Insider. HP ended up paying over $10B.

Was Meg Whitman out to lunch or daydreaming when HP's CFO told HP's Board that the acquisition was too expensive? Eleven out of the current 12 HP Board members approved this acquisition, and they are the ones who bear the responsibility, notwithstanding's Whitman's attempt to deflect the blame to just two HP employees and away from the HP Board. She identified Apotheker  and Shane Robison, see Earnings Call Transcript - Seeking Alpha at page 8-in response to an analyst question)

HP's Board has proven over and over again that its core competency is the massive destruction of shareholder value. This is not even debatable. Since the start of fiscal 2006, HP has recorded $26.1B in restructuring charges, goodwill write-offs and merger related expenses, more than the $23B market capitalization of the company at $11.7 per share.

After spending $38B in cash on a series of acquisition since 2006, HP's free cash flow has fallen to $6.9B in the most recent fiscal year from $8.8B in fiscal 2006! WSJ

In 2012 alone, HP has now taken two $8 billion charges relating to its acquisitions approved by its Board. WSJ

What is really amazing about all of the foregoing? Individuals are paid a great deal of money to incinerate billions.

If a Board set out to destroy shareholder value purposefully through a series of ill-advised acquisitions, it would have had difficultly doing a better job than HP's Board over the past several years.

In my opinion, the primary reason for the disastrous acquisitions is a Board  completely devoid of even a modicum of common sense. Some of the HP Board members may have high IQs, but raw intelligence is frequently accompanied by a lack of good judgment and common sense, as recently demonstrated by what occurred leading up to the Near Depression with financial institutions relying on complex mathematical models divorced from reality and common sense.  (see e.g. Item # 3 Paul Wilmott & The Need for Nerd Therapy)

(For articles about previous ill-advised HP acquisitions, see NYT article titled "Deal-Making Missteps" and recent article published by MarketWatch)

On the positive side, the HP Board has found an airtight way to increase the common stock dividend yield without raising the dividend. I would not be surprised to see the dividend eliminated.

Another positive note for HP shareholders is that the company has blown so much cash and leveraged its balance sheet to such a degree that it is now unable to make another large acquisition, which would turn out to be just another monument to their collective stupidity.

I can not understand why HP is still in the DJIA. HP is an example of American management at its worse. It is just embarrassing to have this hapless company included in the DJIA. 


As expected, Edison Mission failed to make $97 million of interest payments on its unsecured senior bonds that were due on 11/15/12. This failure triggers a 30 day grace period. If no payment is made at the end of that grace period on 12/17/12, then the owners of 25% in aggregate principal amount of those bonds could declare the entire principal amount and accrued interest due immediately which of course would trigger an EME bankruptcy filing.   

1. Bought 100 of the BOND CEF SGL at $10.1662-ROTH IRA (see Disclaimer)

Company Description: Strategic Global Income Fund is a bond closed end fund.

The fund does not use leverage. This reduces the risk, but also lowers the yield in the current abnormally low short term interest rate environment compared to a fund that uses leverage and invests in similar bonds.

The fund went ex dividend for its monthly distribution last Tuesday (11/20/12)

Morningstar page on SGL (rated at 3 stars)

SEC Form 10 N-Q: List of Holdings as of 8/31/12

Expense Ratio before Waivers: 1.21% (page 59)
Expense Ratio After Waivers: 1.16% 

Trading History: My trading history has been light. 

I bought 100 shares in November 2010 that turned into 115+ shares with reinvestment of dividends. Sold 115+ SGL at $11.51 September 2011). Most of the shares were purchased with a large year end distribution of $1.0882 per share, declared after my purchase, which proved to be tax inefficient for me:

2011 SGL 115+ Shares -38.62
The total return which includes the dividends was a net positive of $133.52 on an original investment of $1,188.95 or 11.2%, realized  in 13 months and ten days.  

I then flipped 100 shares which brought me into a positive net territory on just the shares sales. I did not reinvest the dividend this time: 

Item # 3 Bought 100 SGL at $10.03 (January 2012)-Item # 3 Sold 100 SGL at $10.67 (May 2012)


(1) The Decent Monthly Dividend, Sharp Increase in the Discount to Net Asset VAlue, and the Quick and Steep Decline in Share Price Significantly Improve the Risk-Reward Equation: The sharp decline in the share price can be observed simply by viewing a chart. SGL Interactive Chart There were no dividends paid during the decline which started from a market closing price of $11.36 on 10/18/12.

The last ex dividend date, for a monthly distribution of $.0587 per share, was on 10/16/12. SGL Historical PricesStrategic Global Income Fund, Inc. — Distribution Characteristics for October 2012 The November monthly distribution went ex dividend on 11/20/12, shortly after my purchase on 11/15/12: Strategic Global Income Fund– Distribution Declaration and Updated Price & Distribution Rate Information

Before making this purchase, I compiled the following relevant information:

Friday 11/9/12
Net Asset Value Per Share: $11.68
Market Price: $10.88
Discount: -6.85%

Tuesday 11/13/12 
Net Asset Value Per Share= $11.67
Market Price= $10.71
Discount= -8.23%

Wednesday 11/14/12  
Net Asset Value Per Share= $11.65
Market Price= $10.36
Discount= -11.07%

From Friday to Wednesday, the net asset value per share fell just 4 cents per share (possibly mostly due to currency fluctuations), and the share price declined by 52 cents or 4.78%. That discrepancy increased the discount to net asset value from -6.85% to -11.07%.

I reacted by buying 100 shares after the market price had declined another 20 cents Thursday, 11/15/12:
2012 ROTH IRA 100 SGL Buy at $10.1662
The bid/ask spread was one cent so I placed a market order.

Thursday: 11/15/12 (DAY of Purchase)
Net Asset Value= $11.63
Closing MP= $10.22
Discount=  -12.12% (up 77% from the 11/9/12 closing discount)
Discount at $10.16 Purchase Price= -12.64%
Average 3 Year Discount -6.09%

About an hour after my purchase, I copied the following price information about Bond CEFs and Bond ETFs, acquired and copied shortly after 1:00 P.M. C.S.T on 11/15/12:

Bond CEFs:
GDO: 18.70 -0.85 (-4.35%)
MMT: 6.98 -0.10 (-1.41%)
ERC: 15.08 -0.47 (-3.02%) 
FAM: 16.52 -0.33 (-1.96%)
NBB: 20.83 -0.43 (-2.02%)
SGL: 10.20 -0.16 (-1.54%)
CSI: 19.18 -0.38 (-1.94%)

I did want to add to ERC, where I already have a 550 share position (200 of which is in the ROTH IRA). I need to generate income somewhere. ERC did just go ex dividend for its 10 cent per share monthly distribution and declared its next regular 10 cent monthly dividend. Wells Fargo Advantage Closed-End Funds Declare Monthly Dividends ERC closed at $16.75 on 10/25/12, or $16.65 adjusted for the subsequent 10 cent dividend. ERC Historical Prices

Bond ETFs:
LQD: 121.61 -0.25 (-0.21%)
TLT: 126.81 +0.08 (+0.06%)
BABS: 62.31 +0.29 (+0.47%)
JNK: 39.51 -0.15 (-0.38%)

On an intra-day basis, SGL hit $10.1 on 11/15/12 and closed down 14 cents at $10.22.

Morningstar shows the average three year discount at -6.09% as of 11/15/12.

The fund has a managed distribution policy that will cause some variation in the monthly dividend. The fund is currently distributing monthly dividends at "an annualized rate equal to 6% of the fund's net asset value, as determined as of the last day on which the New York Stock Exchange is open for trading during the first week of that month".

By buying the shares at a discount, I juice that yield above 6%. Assuming something close to a $.059 average monthly rate, the dividend yield at a total cost of $10.16 would be about 6.96%.

In addition, by waiting for a expansion of the discount, particularly in this yield hungry world, I improve my chances of realizing a gain on the shares.

(2) Past Performance: The performance numbers are acceptable, with an average annualized total returns, based on net asset value, at 9.24% (5 years) and 9.78% (10 years), calculated to 5/31/12:

(3) The Discount to Net Asset Value, the Dividend Yield, Weighted Average Maturity of 6.3 Years (as of 5/31/12) and the Lack of Leverage Reduce Risks. 


(1) Foreign Bonds and Unrated Securities:  As of 5/31/12, the fund had 40.9% of its assets in unrated securities (page 12, shareholder report). An individual investor is in no position to evaluate the risks of those bonds. Many of the bonds are issued by companies that are unknown to me.

While the fund owns both U.S. corporate and government bonds, there is a significant weighting in bonds denominated in foreign currencies which adds currency risks to the standard interest rate and credit risks. The fund apparently attempts to hedge currency risk, and there are costs and risks to that practice.

(2) Usual Risks Associated With CEFs: Unlike mutual funds, CEFs are traded like common stocks on the stock exchange.  Individual investors dominate the trading activity and will frequently price these securities in irrational ways. One type of irrational pricing is to buy one of these funds at a significant premium to net asset value. Another involves herd selling of the CEF that rapidly expands the discount to net asset value per share for no reason remotely connected to the fund's performance. Investors in this space simply have to accept that money can be won or lost based on these frequently irrational pricing decisions.

I have been trading CEFs since the early 1980s. This does not make me an expert by any means but it has made me comfortable with values moving up and down based solely on the relationship between the market price and the net asset value per share.

As a result of that experience, I try to follow a few rules in this area:

(a) For the most part, I will avoid CEFs altogether that sell at a premium to net asset value. A mutual fund can be found as a substitute for any CEF.

(b) I will generally liquidate or pare a position bought at a significant discount to net asset value when the discount narrows close to zero (0% to 2%), hopefully coinciding with a rise in net asset valued. In this context a significant discount for a stock CEF would be more than 10% and more than 5% for a bond CEF.

(c) My goal is to eventually harvest a 10% annualized gain. With a fund that pays a rich dividend, this goal can frequently by simply selling the security at a small profit.

(d) Most of the CEFs that I choose will pay monthly dividends. I will not reinvest the dividends generally unless the CEF is selling at a significant discount to net asset value. While ADX is selling at greater than a 10% discount, I have elected to cease the reinvestment. Instead, I will use the cash dividend to buy shares in the market opportunistically and based on predetermined criteria.

(e) After liquidating or paring a position, I will be monitoring the price and net asset value discounts to determine the attractiveness of a re-entry.

(f) I pay attention to the historical discount percentages. If a bond fund has an average discount rate over three years of zero percent and suddenly that discount expands to 6%, I am going to take a look. One way to make money in this space is to buy on such occasions and then wait for a return to a more normal discount range. Other factors will need to be evaluated, including whether the fund is suffering a major decline in net asset value as the discount expands, which is a problematic scenario. The more optimal scenario is a stable or rising net asset value and a temporary air pocket on the market price which creates an abnormally high discount.

2. Bought 100 of the BOND CEF GDO at $18.9-Taxable Account (see disclaimer): This is a continuation of my bond CEF buys, as their prices tanked Wednesday and Thursday last week for no discernible rational reason.

When I bought these shares on 11/15/12, the price had already fallen by 65 cents from the previous close of $19.55. I placed the limit order at below the then existing market price in order to pay for the commission cost:

That is a notable decline for a bond fund. It is even more worthy of note that the price continued to spiral down after my purchase, hitting $18.49 intra-day, and had also fallen from a close of $20.76 on 10/22/12, with no intervening dividend payments to account for any of that drop. GDO Historical Prices

This decline would be understandable, assuming there was some significant decline in the bonds owned by the fund, but the net asset value per share was remaining stable and consequently offered no justification for the decline.

Close on 11/15/12: GDO: 19.13 -0.42 (-2.15%)
Intra-day Swing on 11/15/12: $18.48 to $19.63, just bizarre and more than a little bit crazy for a bond fund.

The price started to recover last Friday.

Company Description: Western Asset Global Corp Defined Opportunity Fund is a bond closed end investment fund, investing primarily in investment grade rated bonds. The fund does venture into the junk category.

GDO is a term bond fund. It is scheduled to liquidate its holdings and distribute the proceeds to its shareholders on or about 12/2/2024. If the portfolio is managed with that duration in mind, a term bond fund acquires some of the characteristics of an individual bond when held to maturity. The investor knows that their money will be returned to them at a date certain. This maturity feature of a bond maturing in 12 years reduces interest rate risk. A term bond fund is as close as a bond fund can come to the important option of holding an individual bond to maturity.

One potential negative for an open term bond fund will occur during a long term secular bear market in bonds.  The individual owns the fund and has no control over the bonds. This point needs to be drilled into an investor's head. ALMOST ALL BOND FUNDS HAVE NO MATURITY DATE. A few bond funds have term dates. Some of the term bond funds are CEFs, like GDO and IGI offered by Western Asset, or ETFs (see offerings at ETF Product List - Guggenheim Funds Distributors under "Fixed Income').

A bond fund would likely be declining in value during a period of rising rates. Even a lazy investor will start to notice that net asset decline and may even enter a google search phrase "why is my bond fund going down".

The manager may be able to slow down the rate of decline, but the asset class is nonetheless in a long bear cycle and money is going to be lost. The only way to stop the bleeding for the individual investor is to sell their shares in the bond fund at a loss. During a bond bear market, it would not be surprising to see the annual unrealized loss in the fund shares to substantially exceed the annual income paid by the fund. This would not be hard to do when the bond fund yield is low. The very low cost Vanguard ETF for the Total Bond Market, BND, has an SEC yield of about 1.6%.

A term bond fund like GDO involves more risk than a fund that owns only bonds maturing in 2024. There are Bond ETFs that focus on a particular year. Since GDO owns bonds maturing in different years, including several long term bonds, the fund manager will have to need to eliminate the post 2024 maturities as the liquidation approaches, and this may occur at an inopportune time.  Vanguard Total Bond Market ETF (expense ratio of .1%).  For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards/Assume Lost of Principal Possible

A recent article in Forbes highlight the advantages and disadvantages of buying individual bonds compared to bond funds.

An investor would have to be as old or older than the OG to know first hand the carnage that a long term bear market can inflict on a bond fund investor. The youngsters only know about the good times. Now, the OG did not invest in any funds during the 1970s and has been a Stock Jock for most of the past 40+ years. Still, the memory of the1965-1982 period is seared into the OG's mush of a brain.

SEC Form N-Q: Holdings as of 7/31/12

Last SEC Filed Shareholder Report: Period Ending 4/30/12

GDO page at the Closed-End Fund Association

GDO page at Morningstar

Sponsor's website (link may not work): Legg Mason Institutional Investor - GDO

Morningstar calculates the average 3 year discount to net asset value at zero percent.

The fund does use some leverage, currently less than 20%.

The stock was ex dividend for a $.125 per share monthly dividend last Tuesday, 11/20/12. I will receive that dividend.

Prior Trading Activity: I have been an active trader in this security. Earlier this year, I probably peaked with about a $10,000 exposure to this bond CEF.

I had sold down my position to 120 shares held in the ROTH IRA before 11/15/12. The average cost per share is $17.82.

I decided to keep those shares for the income generation and passed on taking a capital gain on the shares. I  considered selling those 120 shares almost daily in mid-October when the price jumped on the 10/16/12 ex dividend date. The shares closed at $20.49 on 10/16/12, went ex dividend for a monthly distribution of $.125 per share on 10/17/12 and that day at $20.65. The top was hit a few days later at $20.71 and then the slide started slowly at first and gaining momentum after 11/12/12. GDO Historical Prices I elected not to add to the retirement account position, at least for now. It does make more sense for me to buy GDO in the ROTH IRA account.

I had sold all of my shares in the main taxable account, content with any profit on the shares as long as I captured the dividend. The last shares were sold in July 2012: Item # 1 Sold Remaining GDO in Taxable Account at $19.69 (snapshot provided: realized gain of $52.43).

Item # 2 Sold 200 GDO at $19.18 (June 2012)(snapshot provided: realized gain $97.33)

Sold 100 GDO at $18.72 (January 2012)-Bought March 2010 at $18.46.

I made a snapshot of my 2012 trades in my main taxable account:

2012 GDO 336.082 Shares +$132.63
2011 GDO Main Taxable Dividends:

2011 GDO Dividends Main Taxable Account $503.86
While other investors have their own objectives, my purpose for owning a bond fund is to generate income and to exit the position without a loss on the shares.

I have been more successful in trading other bond funds for profits, including IGI, that is another 2024 term bond fund offered by Western Asset. Western Asset Investment Grade Defined Opportunity Trust  (IGI);  Sold 200 IGI at $21.52+Sold 100 IGI at 21.26 In IRASold:100 IGI @ 20.75Sold 100 IGI @ 20.76 The total realized gain on IGI shares, however, is only $462.07. I currently have no position in IGI.

There were a few other minor GDO sells:

Item # 2 Sold 100 GDO at $18.48-ROTH IRA (January 2012) (disposing of highest cost ROTH IRA shares-a standard trading practice)

Item # 1 Sold 75 GDO at $19.24 (October 2010)-Part of a 100 Share lot Bought at $18.63 (March 2010)


(1) Good Dividend Yield in a Low Interest Rate Period and the Expansion of the Discount to Net Asset Value Last Week Improve the Risk-Reward:

I discussed in the last post what happened to bond CEFs last week. The following shows the precipitous decline in GDO shares for no fundamental reason:

Net Asset Value Per Share= $20.68
Market Price= $20.32
Discount= -1.84%

11/15/12 Day of Purchase
Net Asset Value Per share: $20.64
Closing MP= $19.13
Discount at $19.13= -7.32%
My Purchase= $18.90
Discount at $18.9=  -8.43%
Discount at Intra-Day Low of $18.49= -10.42%
Average 3 Year Discount= 0%

This fund pays monthly dividends which is always viewed as a positive. The fund did reduce the rate from $.125 per share to $.12. A small part of the annual total distribution is supported by capital gains. Western Asset Global Corporate Defined Opportunity Fund Inc. (“GDO”) Sets New Rate and Announces Distributions for the Months of December 2012, January and February 2013

At $.12 per share, the dividend yield would be about 7.62%. As of 9/30/12, the weighted average life of the portfolio is just 6.33 years, and the effective duration is 4.33 years. Both of those factors tend to mitigate interest rate risk but would also result in a lower yield compared to a fund invested only in long term bonds with similar credit ratings.

(2) The Portfolio Tilts Toward Investment Grade Bonds:

(3) The Term Bond Fund Can Reduce Interest Rate Risks Inherent in Bond Funds: I discuss this potential benefit in the Company Description section above.

I have also discussed it in several earlier posts. Stocks, Bonds & Politics: Managing Interest B Rate Risk/Continued Discussion on 1982 or 1974; Item # 3  Bought 100 CEF IGI at $19.89;  Item # 2 Interest Rate Risks- Bonds; and see discussion at SIFMA Bond and Bond FundsRisks of Investing in Bonds; and Rising Rates and Your Investments) and at FINRA Managing Investment Risk.

Risks: All bond funds are going to be subject to interest rate risk, the risk of lost opportunity and credit risks. The term bond may develop risks as the liquidation date approaches, particularly when longer term bonds have to be sold at an inopportune time. An investor holding until the liquidation date may also suffer some loss in net asset value as bonds, bought at a premium mature at par value. Further, the yield could gradually go down as the shorter term bonds mature and the fund invests the proceeds in potentially low yielding short term securities maturing near the liquidation date.  

3. Added 50 SWZ at $10.64 (see Disclaimer):

Company Description: Swiss Helvetia is a stock closed end investment fund that owns equity securities of Swiss companies.

Last SEC Filed Shareholder Report for the Period Ending 6/30/12 Swiss Helvetia Fund, Inc.

Sponsor's website: - Swiss Helvetia Fund

SWZ Page at the CEFA - Closed-End Fund Association.

SWZ Page at Morningstar (currently rated 4 stars)

The fund is discussed in this video at TheStreet TV (an interview with Scott Schultz, author of Guide to Closed End Funds)

Trading Activity Referenced in the Blog:

Added 50 SWZ at 13.75 (8/2/11 Post)
Added to CEF SWZ at $12.15 (12/ 4/2009)


(1) Widening of Discount to Net Asset Value, Dividend Support, and Diversification within CEF Portfolio:  The OG may very well be the most diversified investor in the world. I have a diversified world asset allocation in my CEF portfolio, both bonds and stocks, heavily tilted toward income generation. With the Swiss Helvetia fund, I pick up a diversified (by industry) stock portfolio, with several blue chip names like Nestle, Roche and Novartis, that I do not currently own.

11/16/12 (Day of Purchase)
Net Asset Value Per Share = $12.16
Market Price Per Share= $10.54
Discount= 13.32%

Net Asset Value Per Share=  $12.5
Market Price= $10.69
Discount= -14.48

I picked up the shares at a good discount to net asset value which has widened by about three percent during the most recent market swoon. The average three year discount is -12.16. I always prefer to add shares at a discount greater than the three year average.

The purchase was made on 11/16/12. I will always check the prior day's net asset value per share before making a trading decision. On 11/15/12, the fund reported a net asset value of $12.35 per share. The closing market price that day was $10.5, creating a discount to net asset value of -14.19.

Most of the dividend support comes from long term capital gains. The fund paid out a $1.074 long term capital gain dividend in December 2011 and another $ .727 per share in July 2011. The 2010 and 2009 long term capital gain distribution were much lower at $.264 and $.366 per share. The fund does have a modest income distribution in December of each year ($.16 to $.23 per share would be a reasonable forecast).

LT Capital Gains Per Share:
2008 $  .023 and $.097
2007 $1.162 and $.527
2006 $1.175 and $.203
2005 $1.276 and $.258
2004 $  .464 and $.03153
SWZ Dividend History Since 1988

The fund does not have any capital loss carryforwards. CEFs that have large carryforward losses will generally use those losses to shelter current capital gains. That practice could easily result in no capital gain distributions to shareholders until the loss carryforwards are fully used to offset gains.

The Swiss Helvetia fund at least has the capacity to generate long term capital gain distributions provided it chooses to do so.

As of 6/30/12, the fund reported the following pertinent information on this issue:

Total Market Value of Investments=$344.196+M
Total Cost of Investments=$270.961+M
Novartis: Value $47.635+M-Cost $22.486+M
Nestle: Value $66.154+M-Cost $21.779M+
Roche: Value $38.3+M-Cost $20.5+M

Swiss Helvetia Fund, Inc. at pages 19, 21-22.

I am a long term holder of this one and have reinvested all of the dividends to buy additional shares. I currently own 452+ shares.

I will generally add at least 50 shares per year in an open market purchase.  I skipped 2010.

(2) Exposure to the Swiss Franc: The value of SWZ's holdings to a U.S. investor will of course be largely dependent on how well the shares perform in the host market. Another factor that will have an important impact is the currency exchange rate between the Swiss Franc (CHF) and the U.S. Dollar (USD).

If the Swiss Franc rose 30% in value after I purchased the common stock of Nestle, for example, then the value of my holding would increase by 30% with the Nestle stock price remaining the same at the SIX Swiss Exchange. If I bought those shares using CHF's on the Swiss stock exchange, sold the shares at break-even, and then converted the CHF's back to USDs, I would have 30% more USDs minus the currency commission costs. The same would be true, without the currency conversion costs, by buying Nestle ADR shares on the pink sheet exchange using USDs. NSRGY Nestle S.A

Once the investor puts pen to paper, you will see that the price of the ADR tracks the ordinary Nestle share price on the Swiss exchange, priced in CHFs, which would then be converted at the prevailing exchange rate into USDs.  Stocks, Bonds & Politics: Swiss Franc & Roche ADR

I have a lot more faith in the long term prospects of assets priced in CHFs than in USDs. But there is a problem, as discussed in the risk section below.


When venturing outside Switzerland's blue chip companies, the fund has had mediocre results in my opinion. Most of the realized gains are concentrated in three blue chips with a significant number of the other investments showing unrealized losses. A fund that buys Swiss companies would necessarily have a significant part of the portfolio in Nestle, Novartis and Roche. That part of the investment process is a no brainer.

The three large Swiss financial, firms, UBS, Zurich and Credit Suisse, have been a negative since the Near Depression. The UBS shares peaked at over $60 and now a rally takes the share price to $15. UBS Interactive Chart Credit Suisse peaked at near $80 and is currently trading in the low 20s. CS Interactive Chart

The large industrial firm ABB and Holcim, one of the largest cement producers worldwide, have been disappointments, but their fortunes may improve with a more robust and sustainable economy recovery, particularly in Europe. ABB Interactive Chart

There are a few small cap successes such as the $471,625 investment in Lindt & Sprungli (chocolates) worth almost $5M as of 6/30/12 (page 19). As a long term investor in SWZ, I would have much preferred more money invested in that chocolate maker than in Addex Pharmaceuticals, where a $16.988+M investment was worth $3+M as of 6/30/12. Addex's price has improved some since June: ADXN.SW A long term chart, however, would call into the question the initial decision made by SWZ's portfolio manager to invest. ADXN.SW Interactive Chart 

While the Swiss Franc would probably rise significantly against the USD without massive central bank intervention, which would benefit the U.S. owners of SWZ, the Swiss Central Bank has periodically intervened to lower the value of the Swiss Franc in order to improve the competitiveness of Swiss companies particularly against European companies operating in the eurozone area.

This two year chart of USD/CHF currency conversion shows the USD falling steadily in value against the CHF (Swiss Franc) until early August 2011, whereupon there was a sharp spike in the USD. This was the direct result of the Swiss Central Bank creating and selling CHFs.

The owners of the Rydex CurrencyShares Swiss Fran ETF (FXF) were enjoying a nice rise in this security, as the price rose from $99 in early December 2010 to $138 on August 9, 2011. This would be due solely to the CHF's rise in value against the USD. After the intervention, the price of FXF plummeted to $106 in early October. The price has since fluctuated between $100 and $110, indicating to me a range acceptable to the Swiss Central Bank. This downdraft in the value of the Swiss Franc, engineered by the Swiss Central Bank, would be disadvantageous to U.S. individuals that own stock of Swiss companies prior to the intervention. Stocks, Bonds & Politics: International Trading and Currency Risks

I was hit by the actions of the Swiss Central Bank, though I did not own any Swiss Francs. On August 2, 2011, just before the intervention, I bought 50 shares of SWZ at $13.75. Added 50 SWZ at 13.75 While a significant part of the diminution in share value is due to subsequent dividends, another reason is precipitous drop in the CHF resulting from the Swiss bank intervention a few days later.

By August 10th, the value of SWZ shares had declined to $12.41.  SWZ Historical Prices

Novartis shares, traded on the NYSE, fell from $61.18 close on 8/1/11 to $54.53 on 8/10/11.

There is an ETF that invests in Swiss stocks. iShares MSCI Switzerland Index Fund (EWL) The expense ratio is .52%. About 48% of the portfolio is in Nestle, Novartis and Roche. Over the past ten years ending 9/30/12, EWL has had an average annualized return of 10,1%, but only .49% over the past five years. iShares MSCI Switzerland Index Fund (EWL): Performance

4. Bought 100 of the Stock CEF ADX at 10.1367 (see Disclaimer): In the last post, I mentioned that I had quit reinvesting the ADX dividend and would buy ADX shares only when two criteria were met. The open market purchase had to be at greater than a 13% discount to net asset value and at least 5% below my average cost per share. Those criteria were met last Friday after ADX went ex dividend for its annual distribution which chopped off $.53 per share from the net asset value and market price.  Adams Express Declares Year-End Distribution; Exceeds Its 6% Minimum Annual Distribution Rate Commitment

When reinvesting the dividend to buy more shares, it would be random whether or not those two conditions would be met at the time of purchase, which would be the payment for the distribution on 12/27/12. If the market rallied into year end, I would likely be buying shares at a higher price than $10.14 and possibly at a narrower discount. The converse is also a possibility.

ADX 11/16/12
Closing Market Price= $10.13
Net Asset Value Per Share= $11.79
Discount to Net Asset Value Per Share= -14.08%

ADX 11/19/12
Closing Market Price = $10.27
Net Asset Value Per Share= $12.04
Discount= -14.7%

I would add the following caveat about reinvestment. If there is a significant slide in the share price from $10.14, and an expansion in the discount prior to the payment of the year end dividend, I may elect to reinvest that dividend to buy more shares.

For brokerage firms that buy shares in the open market to satisfy their customer requests for reinvestment, each may have a different cut off date for a customer election. Generally, if I want to change the distribution to reinvestment, I will try to do it at least five days prior to the payment date.

I discussed in a prior post the difference in the ADX reinvestment price depending on the brokerage company. Continuation of Discussions Re: Broker Price Differences For Reinvested DividendsDifferences in Prices Among Brokerage Firms for Reinvested Dividends

For example, I noted a $.2942 per share difference in the reinvestment prices of Schwab and Fidelity for the 6/1/2012 distribution. That was another reason why I quit reinvesting the dividend in my personal Fidelity account. The Schwab account is a trust that I manage.

Company Description: Adams Express is a stock closed end investment fund that was formed just prior to the 1929 stock market crash. It was one of the few CEFs that survived that crash and the Great Depression.  Most of the CEFs that failed were using leverage to buy stocks: bubble_1929.pdf I would characterize ADX as a large cap value fund. This is a link to how the fund describes its investment approach: Adams Express Company | Investment Philosophy and Strategies

ADX page at the CEFA - Closed-End Fund Association

Fund website: Adams Express Company

ADX page at Morningstar (currently rated 3 stars)

ADX TOP Ten Holdings as of 9/30/12

One of the top ten holdings is another CEF, Petroleum & Resources, that has been connected with ADX probably since their formation back in 1929. Petroleum & Resources Corp. | About The two CEFs share office space and personnel. Unlike many CEFs, both ADX and PEO are managed by their own employees rather than a a separate management company.

I also own PEO shares: Petroleum & Resources Corp. | Investments in Global Energy and Natural Resources

Trading History: I have periodically bought and sold ADX shares since 1983. I liquidated my position prior to the Near Depression and re-initiated a position in May 2008 as a potential trade. Unfortunately, those shares were purchased before the Lehman failure, and  I consequently became a long term holder of ADX shares. I will liquidate the 200 shares bought in May 2008 when and if the share price exceeds my total average cost in those shares which is $12.98. If I am successful at executing that trade, it will substantially lower my average cost per share. The current average total cost in 850+ shares is $10.68 after the most recent 100 share purchase at $10.14.

I discussed making purchases in the following posts:

Item # 1 Added 50 of the Stock CEF ADX at $9.77 (December 2011)

Item # # 2 Added 50 ADX at 10.95 (June 2011)

Item # 1 Bough 200 ADX @ $9.99 (October 2010)

Item # 6 Added 50 ADX at $9.7 (July 2010)

Item # 5 Added To CEF ADX at $9.98 (November 2009)

Item # 2 Bought  ADX at $8.34 (May 2009)

I have acquired a large number of shares with reinvested dividend from September  2008 through June 2012.


(1) Large Discount to Net Asset Value and Dividend Support: As noted above, ADX shares sell at a large discount to net asset value. I am effect buying an undivided interest in a quality portfolio at less than $.86 on the dollar.

This CEF also has a long history of paying dividends. Most of the dividend support will come from realized long term capital gains which makes the fund more tax efficient under current law, compared to a hyper trading fund that generates mostly short term capital gains taxed at an investor's highest marginal tax rate.

The fund is currently committed to an annual distribution rate of at least 6%. Adams Express Company | What Our Commitment to a 6% Annual Minimum Distribution Means When an investor looks at ADX yield information at financial websites, the information will be incorrect. Those sites, for reasons unknown, only include the ordinary income dividends. Most of ADX's dividends have historically been characterized as capital gain distributions.

See Dividend ‎History Since 1958.pdf

(2) For the Most Part, I Am Comfortable with this Fund's Security Selections.

Risks and Disadvantages:  

1. Persistent Large Discount to Net Asset Value: For as long as I can remember, ADX shares have traded close to a !5% discount to net asset value. The percentage will fluctuate some but most of the daily discounts to net asset value would be in the 12% to 16% based on my frequently casual observations. Morningstar shows the average three year discount at 14.77%. For a trader of CEFs, I would prefer to buy a stock CEF near a 15% discount and then to pare shares when the discount shrinks to 5% to 7% in an up market. I can make money in two ways in that scenario. Off hand, I do not recall ADX shares ever trading at a 7% discount and it would be rare to see a discount less than 10%. If there was a narrowing of the discount below 10% in an up market, I would expect to find at least a few motivated sellers.

I would add that large discounts for stock CEFs that have been around a long time are more the norm than an exception. Other pre-1929 crash CEFs are Tri-Continental, Central Securities, General American Investors and Petroleum & Resources.

2. Non-Stellar Performance Numbers Over Time: When I look at the performance numbers from 2002 to date, the fund will generally slightly outperform or underperform the S & P 500 index. Adams Express (ADX) Total Returns Morningstar notes that ADX currently has about a .55% expense ratio which is low for a CEF or a mutual fund. If an investor can get S & P 500 returns by buying an ETF that costs far less.

ADX's main advantages compared to an S & P 500 index fund are the larger dividend and the large discount to net asset value.

(3) Usual risks associated with stock funds that invest mostly in blue chip American companies. Anyone owing stocks in 2008 does not need to be reminded that stock prices can crater. Stock corrections of 10-20% are inevitable and always painful.

5. Bought 50 of the Stock CEF CET at $19.05 (see Disclaimer): I initiated a position in this stock CEF after the ex dividend date for the annual distribution. Central Securities Corporation Declares Year-End Distribution The total distribution was $.54, of which $.28 will be taxable as a long term capital gain.

Company Description: Central Securities is one of the closed end stock funds formed prior to the 1929 stock market crash that survived that crash and the subsequent Great Depression.  The fund will generally hold positions for a very long time. It is also unique in that its largest position is in the shares of a private company called Plymouth Rock, acquired for $2.2M in 1982 and valued by CET at $167.5M as of 6/30/12.

Central Securities Top Ten Holdings as of 6/30/12 

These links provide more information about Plymouth Rock: 
2011AnnualReport for Plymouth Rock.pdf

Company Website: Central Securities Corporation

Morningstar Page for CET

‎Last SEC Filed Shareholder Report for the period ending 6/30/12

‎SEC Form N-Q: List of Holdings as of 9/30/12


(1) Large Discount with Dividend Support: CET is selling at a large discount to net asset value and has traditionally paid its shareholders a decent dividend.

Net asset value per Share 11/16/12= $23.29
Discount as of 11/16/12= -18.59%

Central Securities: Dividend History. The dividend history can also be found at page 2 of the last shareholder report. SEC Filed Shareholder Report

Between 1986 through June 2012, the fund has paid $41.81 per share in dividends. The unrealized appreciation on investments rose from $15+M at the 1987 year end to $237+M in June 2012.  The fund does not own that many stocks. It does hold for a very long time.

(2) Expense Ratio is Low for a Fund: The expense ratio at .66% is low for a CEF or a Mutual Fund. (page 17 SEC Filed Report)

Risks and Disadvantages:

(1) Concentration in Plymouth Rock: For an investor buying CET shares in 1982, it would be fair to characterize the $2.2 investment in Plymouth Rock to be a home run. The current concentration in that private firm's shares adds a set of risks to the new shareholders.

One risk would be a purchase of Plymouth Rock for cash. While that would generate a huge capital gain distribution, it would knock the net asset value per share way down. For a new investor, such a development would cause a significant part of their capital investment to be returned to them as a taxable long term capital gain. If the cash premium was say more than twice the current value, even a new purchaser would not be concerned about the tax liability. But a different view would be warranted for that new purchaser, such as the OG, with a cash acquisition at a 10% premium.

There is also of course the risk that something happening to the company that would have a substantial negative impact on its value. While a bad result for a security with a 5% weighting would be bad enough, a stock with a 30% weighting would be, needless to say, six times worse.

I did notice that the fund sold 120 Plymouth Rock shares during the three months ending 6/30/12 for $69,780. I would certainly be supportive of those kind of sales each quarter going forward.

(2) Lack of Diversity: The fund does not have a large number of holdings. I counted 35 common stocks in the portfolio as of 6/30/12. I would have zero interest in buying some of those stocks which is also a negative from my perspective.

(3) The Bayesian Risk Associated with Long Term Holdings: There are arguments supporting very long term holdings periods for individual stocks. However, there comes a time when an investor needs to liquidate the position. I would also maintain that the risks of a major non-temporary decline increases with time. Stocks, Bonds & Politics: Duality of Long Term Risks (March 2009); article written by Mark Hulbert and published by the NYT (2009);  Stocks, Bonds & Politics: Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets (March 2009);

Even stocks that have done well over a long period of time reach valuation levels that have to be sold. GE stock performed admirably between 1982-1990. Though when the stock reached a mid-40s P/E, no competent investor would have kept the shares. The shares would have been sold in 2000 at over $50. GE Interactive Chart Any re-entry would have to wait until the valuation swung back totally in the opposite direction.

While I have done well with KO shares, re-initiating a position near $18, adjusted for the recent 2 for 1 split, the shares needed to be sold by any long term investor, such as BRK, when KO made a parabolic move to a clearly unsustainable valuation in the late 1990's, moving from a split adjusted $4.6 in 2000 to $42.78 in late 1998. KO Interactive Chart

A superior portfolio manager would have bought Microsoft and Intel in the early 1980s and liquidated those positions in their entirety before the Nasdaq Bubble years, eventually transitioning to Apple. The wave can only be ridden for so long before an inevitable decline and fossilization. Microsoft and Intel may be worthwhile total return vehicles for a value investor purchasing shares now, and I own both, who are just hoping for a total return of 10% with the dividends.  Those companies are past their prime and are probably in the early stages of a long term secular decline in their businesses without a major makeover. Where was Intel when the market was clearly moving away from PCs to mobile computing?

Central Investors holds positions for longer than any other fund that I own or know about by far. This has its advantages and disadvantages.

(4) Usual Risks Associated with Stock Funds and CEFs: One risk normally associated with most CEFs is that the discount can expand based on non-fundamental factors.

CET provides quarterly information on its discount going back to 1993. Central Securities Corporation There have been times when this fund sold at greater than a 20% discount to net asset value while a purchaser in 1997 may have bought shares at a premium or a slight discount. There is just no way to predict reliably whether an investor may suffer an unrealized depreciation due solely to an expansion in the discount. This risk is mitigated some by buying at historically high discounts or at a greater discount than the three year average. According to Morningstar, the three year average is a -17.28%.

CET is selling over the past five several years at a consistently higher discount rate than prevailing in prior five year periods. This may partly be due to the high concentration in Plymouth Rock and the large unrealized capital gain.

6. Bought 50 PNNT at $10.2-ROTH IRA (see Disclaimer):

Company Description: PennantPark Investment (PNNT) is a Business Development Corporation. I recently discussed the benefits and risks associated with BDCs in connection with a purchase of PSEC's stock. Item # 3 Bought 100 PSEC @ $10.2-Roth IRA (11/16/12 Post)The same general observations would apply to PNNT except as noted below.

2012 Annual Report for the F/Y Ending Form 10-K

Trading History: NONE-New Position

Recent Earnings Release: For its 4th fiscal quarter, PNNT reported net investment income of $16.7M or $.3 per share. During that quarter, the company paid a $.28 per share dividend. SEC Filed Press Release Net asset value per share was reported at $10.22 per share. I was able to buy PSEC shares recently at a larger discount to net asset value.

As of 9/30/12, PNNT had fully drawn on its $150M Small Business Administration commitment at an average rate of  3.43% exclusive of upfront fees which would bring the total cost up to 4.04%.

There was a draw of $145M on its credit facility at a weighted average cost of 3.49% exclusive of a .5% fee on the undrawn commitment.

The overall portfolio consisted of 54 companies, as of 9/30/12, with an average weighted yield of 13.2% on the debt investments (30% senior secured; 19% in second lien senior secured; 40% in subordinated debt; and 11% in preferred and common stock).

The investments are described starting at page 60 of the last filed annual report. Form 10-K I have never heard of most of those companies and consequently know nothing about them. That is typical for a BDC portfolio that concentrates its investments in private companies. Sometimes, those companies manage to go public.

F4Q12 Results - Earnings Call Transcript - Seeking Alpha


(1) Dividend and Some Upside Potential at the $10.20 Price: I would not invest in a BDC but for the high dividend yield. The goal is simply to harvest a number of dividend payments and to escape without losing money on the shares.

The recent dividend history is summarized at page 39 of the Form 10-K.  As shown in the table at that page, the annual dividend has increased each fiscal year since the F/Y ending in September 2008.

The total dividend paid in the last F/Y was $1.12 per share. At that rate, the dividend yield would be about 10.98% at a total cost of $10.2 per share.

Some of the share risk has been removed simply by a slide from $11.44 on 9/17/12 to my purchase price of $10.2. Looking at two year chart, PNNT Stock Chart, I see some danger in buying shares at over $10.5. There is of course still risk of a share loss at $10.2. Over the past two years, the stock did hit at  $8.92 in September 2011, but recovered to $10.94 by late October 2011.

I simply improve my odds of exiting the position at a profit with a purchase below $10.5.

In the ROTH IRA, I can exceed a 10% annualized, tax free return by simply selling the shares at any profit.

Future Buys: To improve my chances of exiting a PNNT position without losing money on the shares, I will average down at below $9.8 with another 50 share purchase.

Risks and Advantages: 

(1) The Investments are Risky: To get a flavor of the risks, I would urge any investor simply to read the risk section in any 10-Q or 10-K filing made by a BDC. (see pages 19-36 of PNNT's last filed Form 10-K, how many single pages describing the risks?)

What does an average debt yield of 13.2%, frequently with an equity kicker, tell you about the risk? That kind of yield is a flashing red signal in the current low interest rate environment.

(2) Need to Replenish Capital with Share Issuances: PNNT is not a serial issuer of common stock like PSEC, but the company will raise new capital with share issuances. Inevitably, those issuances will knock the price of shares owned by existing shareholders.

A BDC has to pay out over 90% of its net income in dividends to keep its tax status. There is no double taxation for those distributions which would be the case in regular "C" corporations. The avoidance of double taxation, the 90% distribution requirement, and the high yield received by the fund on its investments due to their risks explain PNNT's high dividend yield. There is no free lunch. In addition to the risks associated with the investments going bad, the existing shareholder will have to suffer through a number of share offerings as the BDC replenishes its capital depleted by the dividends and possible investment losses, or to simply make more investments which may or may not prove to be desirable.

The company did recently sell 9M shares at $10.82. Final Prospectus Supplement As a general rule, it is better to initiate positions in a BDC after a completion of such an offering.

One Prior Issuance in 2012 and One in 2011:

10.4M Shares at $10.55 (January 2012: Final Prospectus Supplement)
Book Value Per share as of 12/31/2011=$10.19

9.2M Shares at $12.4  (January 2011): Final Prospectus Supplement
Book Value Per Share as of 12/31/2010=$11.14 Page 2 Form 10-Q

So maybe the firm is done for about a year. At least those issuances were at prices above book value. They will be back. The share issuances are not as frequent or as bad as PSEC.

It is certainly more negative when the shares are sold below net asset value per share, which occurred with several BDCs during and soon after the recent Near Depression.

7. MOL (own 200):  The "principal protected" senior unsecured note MOL ended its annual period on 11/19/2012 and will pay its 2% minimum distribution on a $10 par value again ($.2 per share). MOL went ex dividend on Wednesday, 11/21/12.

The P.M. London gold fix on 11/19/12 was $1,730.5. LBMA | Gold Fixings I will consequently receive on 11/27/12 $40 in interest for my 200 shares. MOL Prospectus

I have computed the relevant numbers for the next annual period:

Starting Value on 11/19/12= $1,730.5
Maximum Level Violation Number= $2,059.29

Of course, any close above the maximum level number during the current annual period triggers a reversion back to 2% irrespective of the closing gold value. The starting value and maximum level numbers are consequently important numbers to know when investing in these securities.

There was no maximum level violation in the annual coupon period ending on 11/19/12.

As noted in a recent post, MOL would have paid more than 2% with a close about $1,777.35. Added 100 MOL at $9.78 (par value $10, maturity 11/26/2014) It look promising for a few days in October with gold rising as high as $1791.74 on 10/2/12.  There are two more annual coupon periods left on this senior unsecured note.

As noted many times, I am okay with receiving the minimum annual interest coupon provided I have a chance at more.

A buyer of fixed coupon Citigroup note maturing in 2014 would have no such chance and would have a YTM of less than 2%:

2014 Note 6.375% (currently less than 1.5% YTM)
2014 Note 5.125%

Politics & ETC.

1. Unions and Municipal Bankruptcy: A recent Reuters article explores why a large California city, San Bernardino, has filed for bankruptcy. The primary cause is not hard to discover. The police and fire departments consume about 75% of the city's general fund, and most of those funds are spent on wage and pension costs. An example given by Reuters is a police lieutenant retiring in his 50's with a life time $128,000 per year pension and a $230,000 payment on his last day. As higher wages and better benefits were given to union employees, approved by politicians who received generous campaign contributions from the unions, there was simply no way that this former middle-class dominant community could avoid the salaries and retirement benefits. The city is now reeling from crime and foreclosures.

2. Swimming Pool Heaters and Hotels: In the late 1980s, I worked on a case involving the leakage of carbon monoxide from a hotel's swimming pool heater. The pool was in the interior of the building. The room housing the gas fired swimming pool heater was on the first floor nearby and underneath guest rooms. Carbon monoxide, a colorless and odorless gas, leaked from the heater and flowed up into guest rooms through unsealed areas. One person died and several were taken to the hospital.

USAToday ran a front page story last week that highlights that this problem still exists.  Hotel guests face carbon monoxide risk

One recent incident involved the leakage of carbon monoxide from the a swimming pool heater vent.  Charleston Daily Mail Other recent examples are discussed in these articles: statesmanjournal.comBurlingame Hotel (near SF airport).

The problem will generally be caused by incorrect venting of gas appliances. If venting of the heater is not installed properly, the carbon monoxide may flow down the vent, a backdraft, rather than up. Leakage from the vent itself may also be the cause.

A backdraft can be caused by a number of factors including what is called "negative air pressure". A hotel may have a number of heating and air units on the roof. Those units could create negative air pressure in the underneath open space. If that pressure can be exerted, for whatever reason, inside the pool room, it could reverse the flow down from the vent and into the room and then it simply becomes an issue of the gas finding its way into the rooms.

3. Scott Desjarias and "Conservative" Values in Tennessee's 4th Congressional District: I have to hand it to Scott. As previously noted, Scott is a family values republican who has a strong pro-life stand.

Those values, along with a barrage of Tea Party inspired advertising, led him to victory in Tennessee's  "conservative" 4th congressional district. So what if those ads were deceptive and misleading about Obamacare. Really, is it more important to tell the truth or win an election? Anyone can answer that question, particularly as applied to the self-described  "conservatives".

Sure, a few problems arose before the election that called into question whether Scott actually practiced what he preached to the voters. There was this embarrassing recording of a telephone call, where Scott urged a mistress to have an abortion. Abortion (UPDATE) Scott explained all of that though, saying that he was really trying to prove that the lady was not actually pregnant. Sounds good to me.

As to that affair, and maybe there was another one,  well Scott had a good explanation. He was not a hypocrite, you see, because he was undergoing a trial separation from his wife. Ultimately, there was divorce.

Now, as you would expect, the Bad Democrats wanted a transcript of the divorce proceeding. Yet more proof of their BADNESS. I have to hand it to Scott and his lawyer. They managed to keep that one under wraps until after Scott defeated State Senator Eric Stewart by a significant margin.

I doubt that anything in the divorce transcript would sway the "conservatives" to change their vote, or just refrain from voting in that race.

As it turned out, Scott was consistently pro-life except when he wasn't. Scott and his former wife mutually agreed that she would have two abortions, one of which was for medical reasons and the other as a matter of choice. While Scott denied the pre-election reports about an affair with  a second woman, the transcript showed that she was telling the truth. Scott DesJarlais supported ex-wife's abortions, slept with patients, divorce transcript shows | timesfreepress.comScott DesJarlais Approved Wife's Abortion, Slept With Coworkers, Patients, Court Records Say

Scott is a physician and acknowledged under oath that he had two affairs with patients. The Tennessean

After the transcript's release, a few eager republicans made it known that they are interested in challenging Scott in 2014. Now, those challengers are strongly and consistently pro-life, just like all republicans, and believe fervently in traditional marriage, etc and so on.

One of  Scott's potential GOP challengers, Forrest Shoaf, said it was "dirty pool" for the Democrats to release that transcript.

Scuttlebutt has it that Forrest sent an anonymous thank you card to the Democrats.

Actually, the whole thing is Obama's fault.

4. Several Republican Governor's Refuse to Set Up Health Insurance Exchanges: What is a health insurance exchange. It is a GOP idea that is part of Obamacare. Republicans are now opposed to it because it is part of Obamacare.

In a health insurance exchange, consumers who wish to purchase a health insurance policy could go online, compare offerings by private insurance company, and easily pick the one best for them. Several republican governors oppose this aspect of Obamacare, preferring the current market where consumers remain in the dark when purchasing private health insurance. How you tried to compare health insurance rates?  The private insurance plans, part of the "government takeover of healthcare", offered by the exchange can not refuse insurance based on pre-existing conditions, or eliminate lifetime and annual coverage limits. Health insurance exchange

5. The Makers and The Takers/The Moochers and the Job Creators/The Parasites and the Producers: The foregoing litany of phrases describe how republicans view the recent election results. The white "conservatives" in Wyoming, interviewed for a recent NYT article, are simply dumbstruck about Obama's election. One gentleman expresses the sentiment, shared by Donald Trump, that Obama won through voter fraud and that a revolution may be necessary to save America.

For other Wyoming republicans, Obama's victory simply shows that there are now more takers/parasites than makers/ producers. Anyone voting for Obama just wants the government to take care of them.

I have heard similar sentiments expressed thousands of times. Sometimes I will quiz the proponent of such sentiment about the facts underlying their beliefs.

I will generally find ignorance about their reliance on government programs.

Those Wyoming residents receive more federal dollars per resident than any other state.

Medicare beneficiaries believe that they are paying the full cost of that program, even though it is heavily subsidized by the federal government.

Entitlements contained in the tax code are so numerous that I could easily find several utilized by those Wyoming republicans without breaking a sweat.

Those white "conservatives" are in reality opposed only to the entitlements that they do not receive from the federal government, just another form of hypocrisy. There is also a tendency for them to demean those individuals who receive different kinds of entitlements. And, they do not see any connection between policies that they have supported and the deficit. From their perspective, the entire federal deficit problem is not due to social security, medicare, defense spending (including the trillion dollar Iraq War), interest on the national debt, and tax entitlements for the middle class and the rich, but entirely to giving parasites and moochers food stamps and school lunches.

Most of the self-described "conservatives" prefer that description to the one that would be accurate.