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.

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