Friday, November 16, 2012

Hypocrisy Run Amok//Mortgage REITs/Bought 50 FAM @ 16.79-ROTH IRA/Paired Trade: Sold 50 PRY @ $25.51 & Bought 100 PSEC @ $10.2-Roth IRA/Bought 50 WIN at $8.5-Regular IRA/Averaged Down By Adding 50 of the Stock ETF DWX at $43.76/PEO ADX HD FNFG CSCO WMT/Gray TV Bond Redemption

Yesterday, I focused mainly on buying bond CEFs that have undergone a precipitous decline in prices. I picked the pace up some which started with the 50 share buy of FAM discussed in Item # 5 below. Today, assuming those declines continue, I will focus more buying in that area and may also start to average down some in my regional bank basket with small odd lot orders.

Big Picture Opinion-A Brief Synopsis

Stable Vix Pattern-A Bullish Cyclical Pattern
Cautious and Slightly Bearish Short Term
Bullish Intermediate and Long Term

Neutral Short Term
Slightly Bearish Intermediate Term
Extremely Bearish Long Term

The OG is not enjoying November much. Corrections are inevitable. The market does take away faster than it gives.

The stocks in the Lottery Ticket basket have been hit particularly hard. Fortunately, I have pared my exposure in that basket and have almost $3,425 in buying capacity to make more purchases possibly starting in a few weeks. Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post In the strict rules based strategy applicable to LT purchases, capacity is defined to mean the excess of my realized profits over the total amount currently invested in the basket. Another rule is that my maximum limit in a position is $300 plus any prior realized gains in that position. A few positions were massacred after reporting earnings this month, including two from yesterday. I also found out yesterday that my some of my prior links to the LT Gateway Post have stopped working for reasons unknown to me. The post is still there, published on 10/14/11.

Another area of recent carnage has been in MLPs and MLP ETFs.  

The technical analyst Katie Stockton expects an intermediate term buying opportunity after a shake out period. Getting Technical (11/8/12 interview).

The Barrons technical analysis believes that there is "little left" to prevent a S & P 500 decline to 1267 once there is a breach of support between 1361-1375. That level was pierced to the downside on Wednesday 11/14/12: 1,355.49 -19.04 (-1.39%): S&P 500

Closing Price S & P 500 Yesterday (11/15/12): 1,353.32 -2.17 (-0.16%) (recovering some near the close)

Marc Faber is predicting a 20% decline from 1,470 based on a decline in corporate profits. That would equate to roughly 294 points and a decline to 1,176.

As previously discussed, my working assumption is a reasonable possibility of a decline to 1250-1300 based primarily on a decline in profits that caused me to pare my stock position in October. In addition to the reasons discussed in the last post, there appears to be an acceleration of selling due to investors harvesting long term capital gains. And, as usual, selling causes more selling as technical levels are violated on the downside which has already happened for the major averages.

Unlike Faber, however, I do not have certainty about my downside projection, nor could anyone rationally have such a certain prediction about the future. Consequently, the recent market slide was sufficient for me to at least start  adding back to my stock allocation, given my intermediate and long term bullish outlook and my lack of situational risk which gives me the latitude to hold forever.

Basically, most of my recent purchases are small and are triggered by pre-determined buy levels, as I average down (see Item #2 DWX below), or re-initiate a position after a severe downdraft (e.g. WIN, see Item # 1 below)

The International Energy Agency predicted that the United States would become the world's leading oil producer by 2020 and could become a net oil exporter by 2030. And, the IEA predicts the U.S. will become the leading natural gas producer by 2015. The turnaround is largely due to the extraction of oil and gas from shale rock and efforts at energy conservation. If those predictions prove to be anywhere close to being accurate, the positive ramifications for the U.S. are huge.

A further indication of a U.S. housing recovery was provided by Home Depot in its third quarter earnings release. U.S. comparable store sales for the third quarter were up 4.3%. The CEO commented that adjusted earnings of $.74 per share were better than expected due "in part . . .to what we believe is the start of the path toward the healing of the housing market".  (see discussion at CNBC)

Cisco (own) had a favorable earnings report earlier this week, which I view as relevant to the big picture issue. SEC Filed Press Release The report is discussed in articles published by BloombergCNBC, and MarketWatch. Cisco did rise in Wednesday's carnage: CSCO: $17.66 +0.81 (+4.81%)

Walmart's third quarter report was slightly disappointing due to the smaller than expected rise in U.S. same store sales. Excluding fuel, comparable sales rose 1.5% in the 13 week period ending 10/26/12. The E.P.S. number of $1.08, up from $.97 a year ago, beat expectations by 1 cent. WMT also stated that sales for November were better than expected so far. Yesterday's Close: WMT: $68.72 -$2.59 (-3.63%)

The continuing slide in Apple's stock price is another negative factor. Yesterday's Close: AAPL: $525.62 -$11.26 (-2.10%) The stock is now well below its 50 and 200 day SMAs:  AAPL Interactive Chart

Due to the recent decline in share prices, I changed my dividend distribution option to reinvestment for the following stocks: Intel, Microsoft, Prospect Capital, General Electric and Commonwealth REIT. Buying shares with the dividend is just one way to opportunistically buy shares.

I had quit reinvesting the Intel dividend in September 2011. I have lost most of my unrealized profit on the Intel position. By using the dividend to buy more shares, I may raise my average cost of $17.82 slightly, unless the stock continues to slide, in which case I will be averaging down below $17.82.

I do reduce my cash flow by reinvesting dividends, and that could have an adverse impact on my ability to buy opportunistically as explained in Item # 6 below. On the flip side, I will have more cash flow, assuming no distribution cuts, when I change the option back to payment in cash.  


Both ADX and PEO were ex dividend for their year end distributions yesterday.

Adams Express (own) declared a year end dividend of $.53 per share, consisting of 5 cent in investment income, 9 cents in short term capital gains and 38 cents in long term capital gains. I have quit reinvesting the dividend. Instead, I will buy more shares only when the discount to net asset value exceeds 13% and the price is 5% below my average cost per share. Generally, the likelihood of those criteria being met increases after the ex-dividend date for a large dividend distribution. The price will be adjusted by the amount of the dividend, and some investors are prone to selling after that date. I currently own 750+ shares. I may buy the shares before I actually receive the cash dividend.

Yesterday's Close Adjusted for the Ex-Dividend: ADX: $10.19 +0.04 (+0.39%)

Petroleum & Resources (own) declared a year end distribution of $1.3 per share, consisting mostly of $1.12 per share in long term capital gains. I will reinvest the dividend to buy more shares.

General American Investors (own) went also ex dividend on 11/15/12 for a $1.4 per share distribution. Most of that distribution ($1.23) was characterized as a long term capital gain. Due to the decline in the share price since I established my position, I changed my distribution option to reinvestment in shares. On 11/14/12, the net asset value per share was reported at $32.46, with a discount to net asset value at -15.22, based on a closing market price of $27.52.

Yesterday's Close Adjusted for the Ex-Dividend: GAM: $26.09 -0.03 (-0.11%)


Mortgage REITs have been under severe selling pressure since late September. Their downslide in price accelerated with the release of their third quarter earnings reports, which highlighted the problematic contraction of their respective net interest spreads and the related prepayment problem. (see e.g. charts of NLY, AGNC, ARR and CYS: CYS Interactive Chart,  ARR Interactive Chart; NLY Interactive ChartAGNC Interactive Chart. Unfortunately, I own 100 NLY and 150 ARR, but have already liquidated my positions in CYS, MFA, and AGNC. I recently sold the Mortgage REIT MFA Financial. Sold 100 MFA at $8.25-ROTH IRA (11/9/12 Post). My trepidation and caution in this sector has limited my unrealized losses to an immaterial amount.

Due to the share price declines below book value per share, I did recently change my dividend distribution option on both ARR and NLY to reinvestment in shares from payment in cash.

The downward spiral gained momentum last Tuesday in response to Annaly's offer to acquire the 87.6% of Crexus (CXS) that it did not already own. That development was viewed by many investors as tantamount to an admission that NLY's current business model was not going to work given the Fed's current monetary policy and QE3. I have previously discussed these negative developments. There are a number of articles published at Seeking Alpha, including one earlier this week, that discuss these issues.

Crexus is a REIT that primarily buys commercial real estate loans. In the event this acquisition is consummated, it would represent a small shift away from an agency mortgage-backed securities portfolio An article in Barrons summarizes Citigroup's view of this acquisition.

Investors tend to overreact to both the downside and the upside. In that post discussing the MFA Financial sell, I mentioned that I would consider buying back those shares at below $7.5. Given the downdraft and extreme negativity prevailing now, I may wait for a price below $7 and possibly even closer to $6.5 than to $7. The decision will probably be based on an instinctive feel for the herd's panic.

My regional bank basket has taken a good hit for a similar reason. While loan losses have been going down, the Fed's Jihad is causing pressure on the net interest margin, the same concept as net interest spread for the Mortgage REITs. The size of the interest rate spread is one of the primary drivers for earnings. Due to the decline in share prices, I am likely to resort to small odd lot purchases to average down in a few regional bank names. I do not mind trying to catch a falling knife provided I am doing it with small amounts, like the purchase of Windstream stock discussed below.


1. Bought 50 WIN at $8.5-Regular IRA (see Disclaimer):

Company Description: Windstream is a telecommunications company that provides broadband, voice and video services to customers in 48 states, primarily in rural areas. The company owns local and long-haul fiber networks spanning approximately 115,000 miles, "a robust business sales division and 23 data centers offering managed services and cloud computing".  2012.9.30 10-Q at p. 7

Windstream Profile Page at Reuters

Windstream Key Developments Page at Reuters

Trading History: My most recent common stock transaction was a flip in the ROTH IRA, holding the stock long enough to collect one quarterly dividend. Bought 100 WIN at $9.35-ROTH IRA (5/31/12 Post). 

2012 ROTH IRA 100 WIN +$63.27
Another flip occurred with a 100 share purchase in December 2011 which was sold in January 2012 after collecting one dividend. Sold 100 WIN at $12.01 (1/19/12 Post)-Bought 100 WIN at 11.31 (1/19/12 Post):

2012 WIN 100 Shares-Satellite Taxable= +$50.39
I sold out of my main position, which consisted of 300 shares, back in August 2011. Sold 300 WIN at $12.31 Some of those shares had been bought as low as $6.36 (4/2/09 Post). Some of the shares had been held for over four years Overall, I was satisfied exiting the position with a number of dividends under my belt and a gain on the shares:

2011 WIN 300 Shares +$189.37
The foregoing snapshot shows the benefit of slicing and dicing orders into small lots, averaging down occasionally, and being patient for a share price recovery. Of course, that kind of trading strategy does not always work, generally for one of three possible reasons: (1) an unwillingness to follow the strategy (2) the stock does not recover or (3) the stock never goes below the original purchase price (e.g. a buy of Apple at $12, when it would have been better to take the full position in one buy). The third reason involves the risk of lost opportunity which I am willing to accept.

The Windstream website shows that the $.25 per share quarterly dividend has been in effect since 2/2007, Dividend History | Windstream.

The next ex dividend date is 12/27/12, payable on 1/15/13. 

I thereafter transitioned to the Windstream bonds and have sold all of those too. Sold All Windstream Bonds: Two 2019s at 101 and One 2020 at 103.5

The stock currently yields 5% to 6% more than the YTM of Windstream's intermediate term bonds.   (e.g. 2021 Bond-YTM of 6% at 108 vs. 11.76% dividend yield for the stock at a total cost of $8.5 and a $.25 quarterly dividend rate).  

In the comments section to two recent posts, I mentioned that the unsatisfactory second quarter report had caused me to lower my re-entry target price to below $9 and to lower the number of shares for a potential repurchase to 50 from 100 shares. Stocks, Bonds & Politics: OG Comment Left 11/3/12;  Stocks, Bonds & Politics: OG's Comment Left 8/9/12  I was on automatic pilot to buy those 50 shares whenever the price slid below $9. That occurred with a vengeance on the day Windstream released its third quarter earnings. I was able to pick up 50 shares, using a limit order, at the lowest price for 11/8/12:

2012 Regular IRA WIN 50 Shares at $8.5

Recent Earnings Release: A red flag is raised whenever a company discusses a number of issues in a earnings release before mentioning GAAP net income. SEC Filed Press ReleaseQ/E 9/30/12 10-Q Windstream has the following synopsis of its third quarter earnings, notable primarily for the absence of any reference to Net Income:

Excerpt from 2012 3rd Quarter Windstream Earnings Release
The GAAP numbers receive a brief mention on the second page of the release. The company reported net income of $54M or 9 cents per share, down from $78M or 15 cents per share during the same period in 2011. Excluding merger and restructuring costs, the company would have reported 12 cents per share in the 2012 third quarter.

On the positive side, business service revenues increased by 3% year-over-year, and consumer broadband service revenues increased by 4%. Together, business services and consumer broadband revenues represent 69% of total revenues, up from 42% in 2008. (chart at page 43: 2012.9.30 10Q)

The company claimed to have $182M in adjusted free cash flow in the quarter and $669M for the first nine months. For the first nine months, the company paid out $441M in dividends.

In response to the earnings release, the stock tanked last Thursday on heavy volume of 35+M shares (average volume about 8M shares).

Last Thursday's Closing Price (11/8/12): WIN: 8.51 -0.91 (-9.66%)

The cash flow numbers generate some controversy among the green shade investors who drill down below the surface. Is the free cash flow number real? The main argument supporting the continuation of the $.25 per share quarterly dividend is free cash flow.

Clearly, the payout ratio is unsustainable when one focuses on GAAP net income or even adjusted net income excluding restructuring and merger costs. The company paid out $.25 per share in the third quarter while the non-GAAP net income number ($.12 per share) was less than 50% of that number.

At an $8.5 price, the market is telegraphing that the dividend is not likely to be maintained at the current rate for more than a few more quarters-at the most.

An alternative theory would be that the dividend will be maintained and investors are behaving irrationally. The company is insisting that it believes free cash flow will be sufficient to fund the dividend. This statement was made by the CEO: "Our business continues to perform well, and I am confident in our ability to deliver free cash flow long-term to support the dividend".

This issue is discussed in more depth in the risk section below.

At a total cost of $8.5, the dividend yield would be about 11.75%. Money doubles at that rate, before taxes, in about 6.24 years. Estimate Compound Interest

WIN has a 3 star rating by Morningstar with a FV estimate of $10.

After the earnings report, S & P reiterated its five star rating on the stock, but lowered its 12 month price target to $12 from $13 per share. I would be thrilled to sell this stock at $12 in one year. I would question, however, that price as a realistic target within twelve months considering the negativity surrounding this company. I suspect that the company would have to surprise the Street on the upside for two quarters in a row to achieve that target within 12 months. A $12 target in two years may be doable with a continued expansion of its business services and consumer broadband revenues, with less bleeding on the consumer land line side of the business. S & P still believes that "WIN's dividend is secure".

The report is also discussed in a Motley Fool article aptly titled "Is This 11.8% Yield Worth the Risk? (WIN)"

A five year chart reveals that the stock has traded over $8 per share, except for brief periods during the Near Depression period between October 2008-March 2009: WIN Interactive Chart
A more positive article can be found at Seeking Alpha.


(1) It is All About Capturing The Dividend Without Losing Money on the Shares: For me, I can not justify an investment in Windstream based on any consideration other than the dividend yield at my total cost.

Needless to say, it will be easier to avoid losing money on the shares when buying at $8.50 compared to $10 or $12. However, I am still down some on the shares since my purchase.


(1) Main Risk With a Purchase at $8.5 is a Dividend Cut: The market's reactions to the last two earnings reports have been decidedly negative, which suggests a certain amount of skepticism about the longevity of the current dividend rate.

One commentator noted that the standard calculation of free cash flow resulted in a $99.5M number rather than the Windstream's $182.4M. Motley Fool The CEO acknowledged during the conference call that there was a $83M difference in GAAP's definition of free cash flow and WIN's "adjusted" free cash flow. Some of the items that contribute to the difference include one time costs relating to the PAETEC acquisition and ongoing integration costs. Earnings Call Transcript - Seeking Alpha at page 5 The company also uses what it calls "adjusted capital expenditures".

This is a link to another negative article published by Motely Fool on 11/14, also questioning the sustainability of the dividend and using the metaphor "lipstick on a pig", a comment which unfortunately reminded me of Sarah, one of the thousand or so current and prominent American politicians who, to be put in mildly and focusing only on their better qualities, do not compare favorably to any of the Founding Fathers.

My view is simply that the dividend is in no way a given. Every Windstream investor needs to make a judgment on a quarter-by-quarter basis about the sustainability of the current dividend rate. The only way for me to deal with this legitimate concern is to pick and choose my buy and sell ranges and to set reasonable goals for my total return potential.

I would be pleased to sell this stock at $10+ after receiving four dividends. This would produce a huge total return percentage. A sales price in one year that yields $1.5 per share gain after commissions would produce a $75 gain on 50 shares or about 16+% plus another 11.75% from the dividend. I obviously improve my odds of achieving that return by not holding the 300 shares sold at $12.31 per share back in August 2011 and by picking opportunistically my re-entry prices.

For this stock, a good total return potential would be 10% annualized. That goal can be achieved even by selling the stock at a small loss, assuming a continuation of the current dividend.

(2) Land Lines are Not the Future and WIN Has No Wireless Network: Windstream lost 71,900 access lines in the third quarter, year-over-year and voice revenues declined 4% to $1.87B. WIN is losing customers to wireless carriers, as some customers abandon their land lines and go solely with a wireless carrier. Windstream does not own or operate a wireless network and that is a major disadvantage going forward.  (see comparison of WIN and Centurylink (CTL) at Seeking Alpha)

Future Buys: Unless there is a major adverse development driving the stock below $8, there will be a 50 share add below $8. I am obviously not enthusiastic about WIN, as demonstrated by my timid purchase.

Yesterday's Close: WIN: $8.22 +0.05 (+0.55%) 

2. Averaged Down by Buying 50 of the Stock ETF DWX at $43.76 (see Disclaimer): My discussion of this ETF will be brief since I recently discussed it. Bought 50 of the Stock ETF DWX at $47.56 (9/21/12). In that post, I mentioned that a possible add would occur when and if the price fell below $45. This last purchase lowers my total average cost per share to $45.82. I may average down again by buying 50 more at below $41.

Shortly after buying the first 50 share lot in September, the ETF went ex dividend for a quarterly dividend of $.5574 per share.  I took my first cash dividend in cash but will change the dividend option to reinvestment after bringing my total up to 100 shares.

On the day of my purchase 11/12/12, the sponsor's website showed the following relevant information calculated as of 11/9/12:

Expense Ratio: .45%
Holdings: 122
Dividend Yield: 6.9%
Price to Book Ratio: 1.19

Sponsor's website: SPDR S&P International Dividend ETF

Quote: SPDR S&P International Dividend ETF

Since 2007, I have been underweight international stocks by a substantial percentage, and have only started to add to my allocation.

I will probably also add to the Vanguard ETF VEU which is a low cost international index fund. The expense ratio is .18%. Vanguard - FTSE All-World ex-US ETF And, as a Vanguard Voyager brokerage customer, I do not have to pay a brokerage commission when buying or selling Vanguard ETF. I current own 50 shares of VEU and 50 shares of VWO, and have booked profits in both of those ETFs.  Bought 50 of the Stock ETF VEU at $44 I was hoping to average down at below $40 but may settle on less than $41.

Yesterday's Close: DWX: $43.16 +0.16 (+0.37%)

3. Paired Trade: Sold 50 PRY at $25.51-Roth IRA and Bought 100 PSEC at $10.20-ROTH IRA (see Disclaimer)

Company and Security Descriptions: Prospect Capital Corp. 6.95% Senior Notes Due 2022 (PRY) is an exchange traded bond issued by Prospect Capital Corporation, a Business Development Corporation. PSEC is the common stock symbol. I switched from the bond to the stock in this pared trade.

Prospect Capital Profile Page at Reuters

Prospect Capital Key Developments Page

Company Website: Prospect Capital Corporation

Prior Trading History: My only prior trade of PRY was the purchase of the 50 shares sold earlier this week. Bought 50 PRY at $23.58 (6/5/12 Post). I realized a gain of $82.47, along with two interest payments totaling $50.2:

2012 ROTH IRA: PRY +$82.47and PSEC +$60.47 
The total PSY realized gain was $132.67 or a 11.19% return on my $1,186 investment, annualized, and achieved in slightly more than five months.

I have not sold the common shares held in a taxable account where I recently changed the distribution option to reinvestment from payment in cash. I have never reinvested the dividend for shares held in retirement accounts.

Earlier this year, I liquidated my PSEC holdings in retirement accounts and decided to buy 100 shares back after the recent share price decline. At the $10.2 price, I view the common as having better value than the senior bond PRY at $25.51. That opinion is based primarily on the difference in yield and the possible appreciation potential of the two securities.

My purchase was made with a limit order, entered soon after the market opened on 11/14/12, when the prevailing price was around $10.3. I placed the limit at $.10 below that price, basically to cover my $7 commission cost, fully expecting another downdraft. The price thereafter blew through that limit on a slide to an intra-day low of $9.84. PSEC Historical Prices I was not expecting that much of a downdraft.

2012 ROTH IRA 100 PSEC Buy at $10.2
Closing Price on 11/14/12: PSEC: $9.90 -0.36 (-3.51%) That closing price represents a 16.95% decline since 11/1/12. Volume was 9.366+M shares vs. the 3M per day average. Possibly, some of those sellers were institutions that had just been sold 35M shares of PSEC stock at $11.1 (see  Prospectus)

The downdraft in the stock price cruised through the 50 and 200 SMAs to the downside, cutting through those lines with no resistance.  PSEC Interactive Chart When linking to a chart, the reader may have to draw the SMA lines by clicking "technical indicators", then clicking "simple moving average", and finally typing into separate lines "50" and "200".

Given the risks associated with this stock, my holding period will generally be short term (less than 1 year) for shares bought in a retirement account, most likely flipping the shares for small profits after receiving several monthly dividend payments.

I held a 100 share lot, bought in the Roth IRA, for eleven months: Item # 2 Sold 100 PSEC at $10.83-Roth IRA (6/1/12 Post)- Added 100 PSEC at 10.1 (7/5/11) (see snapshot above)

In the regular IRA, I also sold a 100 share lot  earlier this year, Sold 100 PSEC at $11.36. Fifty of those 100 shares were acquired about four months earlier at $10.36, with the other shares bought in May 2011 and held for over a year.

2012 Regular IRA 100 Shares (two 50 share lots) +$39.6

I had two other flips in an IRA: Item #2 Bought 50 PSEC at $10.48 (9/2009)-Sold 50 PSEC In IRA at $12.16 (3/2010 Post); Bought  50 PSEC @ 9.97 in IRA (July 2010)-Sold 50 PSEC @ 11.5 (January 2011).

2010 Regular IRA 50 Shares +$79.23
2011 Regular IRA 50 Shares +$63.52

As noted above, I have generally been a seller between $11 to $12.16, and a buyer below $10.5.

Realized PSEC Gains in IRAs 2010-2012: $242.82

Given the high dividend yield, any gain on the shares would be acceptable in the retirement accounts.

I believe my only discussions of purchase in a taxable account, where no shares have been sold yet, is in this post: Bought 50 PSEC at $9.5 (July 2010). I can not find any other discussion.

Recent Earnings Release: The recent earnings release for the F/Y 2013 first quarter looked fine to me: Prospect Capital Announces 77% Increase in Net Investment Income per Share and $0.47 Increase in Net Asset Value per Share for First Fiscal Quarter Over Prior Year First Fiscal Quarter For the F/Y first quarter, the company reported net investment income (NII) of $74M or $.46 per share. PSEC estimated that its NII for the 4th quarter would be between $.41 to $.46 per share. The portfolio's current yield stood at 13.3% as of 9/30/12 which does not include the firm's equity stakes. The earnings release lists seventeen new and follow-on investments made during the third quarter. The debt to equity ratio was less than 45% as of 9/30/12 and less than 35% when subtracting cash and cash equivalents.

Form 10-Q for Q/E 9/30/12

Earnings Call Transcript - Seeking Alpha


(1) High Dividend Due In Part to the Avoidance of Double Taxation With Some Though Limited Upside Potential Due to Risks: I would estimate that about 90% of the potential upside originates from capturing the dividend. PSEC is paying a monthly dividend that it raises by a minuscule amount each month. The last dividend announcement was for November, December and January:

Prospect Capital Declares Its 52nd, 53rd, and 54th Consecutive Cash Distributions to Shareholders, Representing More Than $595 Million in Cumulative Distributions to Shareholders Since 2004

For calculating the yield, I will simply call that a 10.7 cents month rate. At that rate, the dividend yield at a total cost of $10.2 would be about 12.59%.

The general idea is to ultimately capture that dividend yield without incurring a loss on the shares. So far, I have been successful achieving that modest objective in the retirement accounts.

To accomplish that goal, a trading strategy needs to be developed for the reasons discussed in the risk section below. A long term, buy and hold investor, would have suffered a significant loss on the shares. PSEC Interactive Chart That would be particularly true for a purchaser in 2006-2007.

A recent article at  Seeking Alpha argues that PSEC has constructed a healthy portfolio. We shall see. There has been an abundance of new investments with the capital raised by recent bond and share offerings.


1. PSEC is A Serial Issuer of Common Stock-A Major Negative: Given the number of recent common stock issuances, it was surprising to see another huge one earlier this month which caused a substantial downdraft in the stock. PSEC sold 35M shares to underwriters at $10.97, assuming the full exercise of the over-allotment option. SEC Filed Prospectus Supplement Prior to the announcement of this share offering, the stock closed at $11.84 on 10/31/12, as noted in the foregoing document.

The company issued 33.161+M shares during the three months ending on 9/30/12:  Form 10-Q at page 46

The company issued 13.5M shares during the three month period ending on 3/31/12: Form 10-Q at page 44

The following snapshot shows the breakdown for the 2011 and 2012 fiscal years ending on June 30th:

Page 151 2012 F/Y Annual Report

It is certain that these share offerings benefit management since their fees will increase. It is not certain that these repetitive offerings will benefit shareholders.

Possibly, if the funds are successfully invested, some benefit will inure to existing shareholders, but that remains to be seen. Time will tell, but some investors may just abandon ship altogether given the sheer number and size of PSEC's stock offerings. I would understand and respect that sentiment. The Board and management have just gone too far with this last offering so soon after the prior one.

An investor can examine the historical success rate by retrieving the book value per share from prior periods. For the Q/E 9/30/12, the company reported a book value per share of $10.88 per share, 10-Q at page 3 The book value per share was $15.24 as of 12/31/2006, 10-Q at page 3. The stock closed at $17.36 on 1/3/2007. PSEC Historical Prices

The conclusion that I draw from this data is that BDCs have to be traded, focusing the purchase activity after the BDC announces a share offering which inevitably knocks down the price. Some shares will need to be sold during pops. Dividend reinvestment options need to be changed back and forth from cash to reinvestment depending on the share price in relation to book value. I am using the dividend to purchase shares at below net asset value per share and will return to the payment in cash option when the shares start to consistently trade above book value. A five to ten percent premium to net book value is likely to trigger a pare, regardless of any other consideration.  

The common share offerings are part of a significant expansion in PSEC's capital for reinvestment. Other capital raises include senior unsecured note offerings and a recent $200M unsecured convertible senior note issuance. Other senior convertible notes issued since December 2010 are described at page 42-43 of the recently filed 10-Q. Recent issuances of the senior unsecured notes are described at pages 44-45.

Shortly after completing the recent stock offering, PSEC sold more senior bonds: Prospectus.

I would regard all of these capital raises together as increasing risks for common shareholders. Of course, a lot depends on the success of the new capital deployments and the overall health of the economy going forward.

2. Depletion of Capital Through Dividend Payments: One reason for capital raises is the requirement that a BDC must distribute at least 90+% of its income to its shareholders. That requirement is the same for REITs and avoids double taxation for the amounts distributed as dividends.

While this requirement will generate greater dividends compared to a regular "C" corporation, the downside is that insufficient capital is being retained to grow the business with investments. The issuance of common shares is therefore understandable, at least to a degree. Possibly one capital raise every 18-24 months would be acceptable.

As a serial issuer, PSEC management is hurting, more than helping, its existing shareholder base in my opinion. A legitimate question to ask is when will be the next one? Will it be next month, or in two months, maybe three at the outside? The PSEC Board and management are not showing any restraint so far-ZERO!. If a number of the new investments turn sour, that would speak volumes about their motives.

3. Risky Portfolio: This risk is common to BDCs. These companies are basically lending money to mostly private firms that would find it difficult to obtain needed capital from banks. Some of the borrowers may be relatively new with little or no track record, heavily indebted companies that have gone private after a leveraged buyout, or older companies that have fallen on hard times. The loans will generally carry high interest rates and will sometimes have an equity kicker such as a stock warrant. One does not need to be a professional loan officer to recognize the risks.

4. Always a Potential for a Dividend Cut: The main reason for buying this security is the dividend. If the portfolio suffers losses and defaults, a dividend cut is certainly a possibility. A recession would increase the odds of a dividend cut. The CEO was clear on the conference call that the company is not giving any guidance on the dividend more than three months ahead, i.e., the dividends already declared by the firm.

I do recall that PSEC reduced its dividend when it went from paying quarterly to the monthly distribution schedule.  Prospect Capital Reduces Its Distribution - Seeking Alpha (June 2010); Item # 5 Stocks, Bonds & Politics: Bought 50 PSEC at $9.5 (June 2010)

Future Buys/Sells: I am targeting a potential 100 share add at below $9.50, but only in a taxable account.

The large number of stock offerings has probably conditioned me to pare my position whenever the price creeps a few percent above book value per share.

The severe drop in price after the last offering is a clear signal by investors that they do not appreciate this constant stream of stock offerings. The institutions that got burned on this last offering with a quick 10% plunge in an already discounted price may be having more than a few second thoughts about this BDC.

As a result of this last stock offering, clearly just one too many in my opinion, I have decided to cast my vote against the Board and any proposal relating to management compensation, unless there is no major stock offering within the next 18 months.

Yesterday's Closing Prices: PSEC: $10.16 +0.27 (+2.73%) and PRY: $25.28 -0.32 (-1.25%)

4. Gray Television Bond Redemption Earlier This Week (Junk Bond Ladder Strategy): I mentioned in the last post that Gray Television would redeem my 2015 second lien bond at a premium. I received $1,078.75, plus accrued interest, for 1 $1000 par value bond:

Bought 1 Gray Television 10.5% Second Lien Bond Maturing 6/29/2015 at 95 (November 2011).

On 11/1/12, I  received the semi-annual interest payment of $52.5, which explains the nominal accrued interest amount. The net interest received, net of accrued interest of $2.04, was $106.46, plus another $109.61 in realized gain based on an adjusted cost basis:

2012 Gray Television 2015 Bond +$109.61
The original cost basis was $958, including commission, which has been raised by the broker to $969.14, reflecting the cumulative original issue discount amortized for tax purposes from the acquisition date through the disposition date. While I have at best a superficial understanding of this aspect of bond accounting, and rely on the broker to calculate the number correctly for tax return purposes, I believe that the government's purpose in requiring this calculation is to take part of my long term capital gain and transform it into interest income taxed at a higher rate, like an original issue discount (OID) for a treasury note purchase being treated as interest income. Just Ridiculous! Stocks, Bonds & Politics:  Tax Accounting For Bonds Purchased in the Secondary Market-Too ComplicatedCost Basis - Bonds bought at a discount

For my purposes now, I include that realized market discount as part of my total return, thereby adding $11.14 to the total, bringing the total income up to $227.36 or a 23.72% return on my original $958 investment, achieved in 1 year and ten days.  

5. Bought Back 50 of the Bond CEF FAM at $16.79-ROTH IRA (see Disclaimer): 

Company Description: The First Trust/Aberdeen Global Opportunity Income Fund is a bond closed end fund.

Sponsor's Website: First Trust/Aberdeen Global Opportunity Income Fund (FAM)

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

FAM Page at the CEFA.

FAM Page at Morningstar.

Previous Trades: A few weeks ago, I eliminated all of FAM shares, other than 50 shares purchased in a taxable account at $16.08.

Sold 150 of 200 FAM at $18.64 (10/1/12: see snapshot)- Bought 50 FAM @ 17.37 (November 2010); Bought 100 FAM @ 17.9 (November 2010). This result is viewed as ideal by me for this kind of investment. I received about two years of monthly dividends; exited the 150 share position with a $114.23 gain on the shares; and bought back 50 of the 150 at a lower price than the previous buys.


(1) The Recent Abrupt Price Decline Significantly Improves the Risk-Reward Calculation:

I noticed Wednesday afternoon that bond CEFs had hit an air pocket after declining for a few days, even though their net asset values were remaining relatively stable. I decided then to buy 50 of FAM at $16.79:

2012 ROTH IRA 50 Share FAM Buy at $16.79
This is what I noted at the time of my purchase:

Sample of Bond CEF and ETF Prices 1:40 P.M C.S.T. 11/14/12

FAM: 16.83 -0.68 (-3.88%)
ERC: 15.57 -0.57 (-3.53%)
GDO: 19.50 -0.47 (-2.35%)
MMT: 7.03 -0.25 (-3.43%)

Bond ETFs:
LQD: 121.83 +0.22 (+0.18%)
JNK: 39.77 0.00 (+0.01%)
BABS: 62.09 +0.22 (+0.36%)

I then checked the recent price action and net asset values per share:

Friday 11/9/12
Net Asset Value Per Share=$18
Market Price=$17.89
Discount= -.61%

Tuesday 11/13/12
Net Asset Value Per Share=$17.97
Market Price=$17.51
Discount= -2.56

When I bought the shares on 11/14/12, the market price had declined to $16.79, a one day decline of $.72 which is huge for a bond fund. I would anticipate little or no change in the net asset value per share for the day, so most of that percentage decline was likely due solely to an expansion of the discount to net asset value.

After the close on Wednesday, I checked the data for that day and found that the net asset value declined by four cents per share from Tuesday:

Wednesday 11/14/12
Net Asset Value Per Share= $17.93
Market Price= $16.85
Discount= -6.02

Since last Friday's close, the market price had declined by $1.05 to Wednesday's closing price, while the net asset value fell only 7 cents. Since this trend may continue, I went with just a 50 share order to give me some latitude to average down.

Yesterday (11/15/12), along with other bond CEFs, the FAM price continued to decline, hitting $16.3 intra-day, which confirmed at least temporarily the wisdom of buying in small increments, particularly when the price decline has no fundamental basis. FAM Historical Prices

The chart highlights the abrupt and significant decline in this bond fund: FAM Interactive Chart

The value of the underlying portfolio has been stable.

Net Asset Value Per Share= $17.92
Closing Market Price= $16.82
Discount= -6.14
Discount at $16.30 (intra-day low)= -9%

By buying the shares at a steeper discount, I at least improve the odds of a profit which can occur by a narrowing of the discount or an increase in the net asset per share, or hopefully a combination of the two. I also improve my dividend yield.

2. Good Monthly Dividend and Possible Appreciation: This fund currently pays a $.13 per share monthly distribution that goes ex dividend on the first of each month. This is the press release for the November distribution: First Trust/Aberdeen Global Opportunity Income Fund Declares its Monthly Common Share Distribution of $0.13 Per Share for November This rate has been in effect since early 2005. FAM Dividend History

Assuming a continuation of that rate, which is of course in no way assured, the dividend yield at a total cost of $16.79 would be about 9.29%.That rate looks particularly attractive in a ROTH IRA since it is in effect tax free. Of course, it is still important to avoid losing money on the shares which would detract from that yield. I simply improve my chances of escaping such a loss with my trading strategy, outlined above and in many other posts, and hopefully exiting all bond fund positions before the onset of a long term bear market in bonds.

3. Credit Quality Tilts Heavily Toward Investment Grade Bonds: 

Future Buys: I will average down by adding another 50 shares in the ROTH IRA, most likely in a range between $15.8-$16.2. It is certainly more advantageous for me to buy this security in the ROTH IRA, rather than in a taxable account, since I am in effect turning a 9+% (taxable at my highest marginal rate, since none of the dividends are qualified) into a tax free yield.

If the price continues to decline below $15.8, I will buy more shares in a taxable account just to generate more cash flow.

Risks and Disadvantages:

 (1) CEFs Are Very Sensitive To Individual Herd Movement: One problem with CEFs is that they are owned primarily by individual investors who have tendency to move in herds. Such movement can cause the discount to shrink or expand based on no fundamental consideration. During stock market corrections, where bonds are stable or up in value, bond CEFs will often start to behave more like common stocks than bond funds.

I will discuss this issue in more depth next Friday and provide my guidelines for dealing with this known risk.

(2) Leverage and Foreign Bonds: This fund uses leverage and owns foreign bonds denominated in local currencies. Those two facts create additional risks for the owners of this fund. The leverage will add to returns when borrowing costs are low, as now, and the bonds purchased with those borrowed funds remain stable in price or go up. Leverage can work both ways of course. The foreign bond ownership creates currency risk which would not exist for a bond fund owning just bonds denominated in USDs. The value of those bonds can go up or down due solely to the currency fluctuations. As of 9/30/12, FAM reported a 58.8% exposure to the USD.

(3) Usual Credit and Interest Rate Issues: As with any bond fund, the investor is subject to both interest rate and credit risks.

Rising Rates and Your Investments
Bond and Bond Funds
Risks of Investing in Bonds

(4) Expense Ratio: The expense ratio is high even after deducting the leverage costs (1.69% as of 6/30/12 excluding interest expense  and 2.09% with interest).

(5) Venezuela: Any investment in the bonds issued by a country controlled by Hugo Chavez makes me nervous. As of 6/30/12, FAM had 4.2% of its assets in Republic of Venezuela bonds (USD denominated).

Yesterday's Close:  FAM: 16.82 -0.03 (-0.18%) (intra-day low of $16.3)
Yesterday's Intra-day Swing: $16.3 to $16.98, just bizarre!

I bought back two more bond CEFs yesterday, as their downdraft in price accelerated for no fundamental reason. I will discuss those two buys in next week's post. One of the two was a re-entry after the position had been liquidated earlier this year, while the other CEF had been substantially pared earlier in 2012.

I try to take whatever the market gives me or at least make a stab at doing so.

This post is already long enough, and no one reading all of it would likely disagree with that observation.

6. Cash Flow into Main Taxable Account on 11/15/12: I will occasionally take snapshots of cash flow into my main taxable account. The generation of a constant cash flow is viewed as my most important strategy. By investing that flow into other income generating securities, I achieve a compounding effect over time.

Importantly for me, I have no psychological or emotional issues that would keep me from using the cash flow to make purchases even in the most scariest of times (e.g. September 2008-March 2009), and that can prove to be rewarding since daytime does regularly follow the darkest of nights.

I started this blog in October 2008 and the posts from the Dark Period show a continuous stream of purchases with cash flow. I had a large number of doubles and even triples with those buys.

I will generally try to use that cash flow to buy opportunistically. Given the amounts, the buys will necessarily be small.

At the moment, I am seeing widespread expansions of discounts to net asset values among CEFs and will concentrate my cash flow purchases in all accounts in that sector. Sometimes, I will just add up the cash flow and make a scatter buy of CEFs, such as the one discussed in Stocks, Bonds & Politics: Added to CEFs BTZ SWZ GDV and ERH (8/9/11/ ERH & BTZ positions subsequently sold in their entirety)

The snapshots of cash flow will also show an eclectic mix of securities. I am an extremely diversified in this particular account with close to 250 positions. Some of the interest payments come from bonds purchased in the bond market (GMAC, Harland Clarke, Terex, RSH, and AGY).

I am just grateful to receive another payment for my 1 AGY Holdings bond (Form 10-Q for the Q/E 9/30/12)

Part of my FNFG holdings are in this account where I reinvested the dividend (see next item).

I also received a monthly distribution from the 50 shares of the bond CEF FAM that was kept when I sold the other 150 as noted above.

The stock CEF IGD paid its monthly distribution.

I received two quarterly dividends from small positions held in the regional bank basket strategy (MBVT and PBCT).

Lastly, two Trust Certificates, JZV and JZJ, paid their semi-annual interest payments. Almost half of my JZJ position was called by the owner of the call warrant in 2010, resulting in a $567 profit on 82 shares but depriving me of the income going forward. (snapshots-Trust Certificates: New Gateway Post)

Cash Flow Main Taxable Account for 11/15/12 Part 1

Cash Flow Part 2

The semi-annual interest payment made by Colt Defense of $43.75 (1 bond) appeared late on 11/15/12 and is not included in these snapshots.

(7) Boneheads at FNFG: First Niagara hit a new ten year low yesterday. FNFG Interactive Chart The main driver for FNFG's share decline is the irresponsible decision made by the CEO and the Board to acquire HSBC branches for about $1B in cash. That indefensible, boneheaded decision led to a 50% cut in the dividend, the sell of boatloads of common stock at historically low prices and other costly capital raises. First Niagara: Just Another Incompetent Bank Board of DirectorsFirst Niagara Dividend Slash-50% Reduction.

 It will take a long time for the stock to recover back to $14 per share and for the dividend to return to its pre-slash level. The OG is just another innocent victim of incompetence.

I own FNFG shares in two accounts. I am reinvesting the dividends in both accounts in order to average down.

My smaller position is in the main taxable account which also has the lowest average cost per share. To dig myself out of this hole in this account, I intend to buy a few more shares soon, most likely near $7 per share, though I mindful of the old age about quit digging when in that proverbial hole.

Eventually, I hope to liquidate the shares held in the main taxable account for a small profit which will be hopefully easier to do by averaging down.

I am thoroughly disgusted with FNFG's Empire Building Board and CEO and will vote against the Board and any proposal relating to the outrageously high compensation paid to management. I was shocked to see so many shareholders vote their approval in the last election.

Yesterday Closing Price 11/15/12: FNFG: $7.18 -0.02 (-0.21%)

The damage caused by the Board and CEO is more clearly seen in a two year chart, focusing on the period from July 2011:  FNFG Interactive Chart

7. Opportunistic Buying and Selling in the ROTH IRA: I may also use this latest downdraft in CEFs to buy back three of the stock CEFs that were recently sold in the ROTH IRA. I sold JSN and RMT after turning more negative in mid-October. Sold 200 of the Stock CEF RMT at $9.3-Roth IRA (10/22/12); SOLD 209 Stock CEF JSN at $12.49-ROTH IRA (10/23/12). The other one was sold in July 2012: Sold 152 BCF at 10.38-Roth IRA. The decision to buy back stock CEFs will be based on certain quantitative criteria, such as the extent of the discounts to net asset value (greater than 10%).  I will generally add that the price needs to be less than 10% of my sale price. So, for RMT, the re-entry point would need to be below $8.37. (yesterday's close: RMT: 8.51 -0.12).

Another factor is whether I am buying during an uptrend or a downturn. In a downturn of unknown duration, I am more likely to slice and dice the purchases into small lots, possibly buying 100 shares rather than 200 RMT and then setting a second target entry point 5% to 10% lower. LB imposes a great deal of discipline on the OG. Usually, there is an unquantifiable factor that enters into the decision making process, what I would characterize as a gut opinion on whether the selling is at least near an exhaustion point.

The recent selling in the ROTH IRA, completed last month, brought my cash allocation close to $30,000. I intend to use most of that cash to buy back securities at lower prices during the current downdraft, spacing out purchases and focusing the buying on down days and opportunistically.

For now, I have limited the CEF buying to bond CEFs.

Maybe I missed the news. Did the Federal Reserve decide to end its Jihad Against the Saving Class three years earlier than stated in their last minutes? I try to keep abreast of important events.

Politics and ETC:

1. General Petraeus and the Other Woman: I concluded many years ago that hypocrisy must be a "conservative" virtue since so many self-styled conservatives worshipped at that alter, though few would ever admit it. While individuals from all political persuasions will delve into hypocrisy, the "conservatives" are far more likely to incessantly preach to others those values that they themselves do not follow.

The latest news about General Petraeus and General John Allen follows a well worn path. General Allen has denied any inappropriate behavior, whereas Petraeus had admitted to having a brief affair with Paula Broadwell, who is also married. Scandal Probe Ensnares General John Allen, Commander of  U.S., NATO troops in Afghanistan - The Washington PostGen. John Allen Being Investigated; Reuters and  CNN stories, both referring to "flirtatious" emails between Allen and Jill Kelley)

Hypocrisy, relating to marriage vows and so called family values, is so common as to be unworthy of much note, except to satisfy the insatiable prurient interests of the American public, even when committed by military and political leaders at the highest level. Lying is a form of hypocrisy and politicians have difficulty telling the truth in case you have not noticed that fact yet.

I always assumed Clinton was lying about his extramarital activities. The only questions were how many and who, assuming there was a desire to find out, and I had none.

To this day, any sensible person would find it far more deplorable that millions are far more concerned about Clinton's misrepresentations on sexual issues than the misrepresentations told by the Bush Administration to justify the Iraq invasion, resulting in well over a hundred thousands deaths, tens of thousands scared for life physically and emotionally, not to mention a trillion dollars down a rat hole that will be financed and refinanced into eternity with debt and an endless number of interest payments.

And, that is in large part how we end up in wars like Iraq and Vietnam. The judgments of those citizens will frequently carry the day. And, when a President makes a decision about going to war based on ideology and pre-conceived beliefs based on reality creation, which frequently includes an inability to distinguish fact from fiction, or to exercise sound judgment based on a non-biased assessment of the information, the consequences can be devastating for the entire country. Neither Bush nor Cheney were even capable of exercising that kind of judgment.

And, I wonder why two cheerleaders for the Iraq Invasion, Senators Graham and McCain, can be so critical of Susan Rice for making statements soon after the Benghazi attacks that were not based on a complete factual narrative. CNN McCain and Graham are exactly the kind of people that recklessly lead America into disastrous long term wars like Vietnam and Iraq, without exercising a modicum of good judgment, based on reliable information, or having any sensible relation to the nation's security interest.

I digress. Back to the topic.

Of course, it really does become disgusting when the hypocrite feels obliged to preach to others, frequently ad nauseam, what I call the Jimmy Swaggart personality disorder. The OG was never a fan.

The Petraeus Affair is noteworthy primarily because the F.B.I. had no difficulty examining emails sent by several citizens, initially based on a threat allegedly made in an anonymous email to Jill Kelley. An FBI Agent involved in the case sent a shirtless photo of himself to Ms. Kelley, though he claims that it was a joke and happened several years ago. NYT

The privacy and hypocrisy issues are viewed as more important than the personal foibles of the involved individuals, which I view primarily as a private issue between married couples, though I will not downplay the moral issues (see discussion of privacy issues in  an articles published by CNN and the NYT)

I now have a confession to make. I have developed some prurient interest in these latest peccadillos, which is unusual for me, at least sufficient to read these articles about Jill Kelley and her sister. USA TodayHuffingtonPost,  Tampa Bay Times In my defense, the USAToday story stared me in the face when I opened the front page yesterday morning and was hard to avoid. The international press loves the story: Telegraph I said a prayer thanking God that I am not married to either of them.

Have you heard how much Monica Lewinsky reportedly received as an advance for a book deal. $12 million Now, I would not read that one even if I was paid a $1,000. I doubt that Ms. Broadwell will do as well but her book deal should easily be a few million.

2. Spielberg's Lincoln: Steven Spielberg's New Movie "Lincoln": During the last election, Americans became aware of unfiltered republican opinions about God's Will.

Throughout American history, politicians have justified their opinions by presenting their version of God's Will.

The Lincoln movie will apparently focus in part on the passage of the Thirteenth Amendment to the Constitution which outlawed slavery. The opponents of abolishing slavery were a group of northern  politicians known as "Copperheads", who invoked scripture to support their opposition, arguing that it was God, not man, that created inequality in races. How many politicians today would argue that slavery was God's Will?

3. Like Father, Like Son in Mississippi: According to a recent AP poll, about 56% of Americans have some anti-black sentiment, an increase from 49% four years ago. NYT For those willing to look around, that sentiment is not hard to find.

Overtly racist comments can be heard frequently in conversations with white males, or by reading the comment sections to either certain mainstream publications like the WSJ or to pseudo "conservative" websites like Glen Beck's or

One story which received national attention after the election was a gathering of several hundred white  University Of Mississippi students who believe that shouting racial slurs is an articulate means to protest Obama's election. USAToday

Exit polling revealed that Obama won only 10% of the white vote in Mississippi, the lowest percentage nationwide, and that state has the highest percentage of black voters. Needless to say, Mississippi has a history on race relations that is just shameful and deserving of national condemnation. (see e.g. Ku Klux Klan under the section titled "Later Klans, 1950 through 1960s") It is important to keep the past in mind when examining the present.

As noted by Charles Blow in his NYT, Obama's highest percentage of white voters came from Maine which had the fewest minority voters. Obama won the white vote in states with small minority voting populations, including Maine, Massachusetts, New Hampshire, Oregon, Connecticut and Washington state.

4. Hypocrisy And Extremism Wins in Tennessee: Scot Desjarlais handily won re-election to the "conservative" 4th Congressional district in Tennessee, defeating state senator Eric Stewart, by 56% to 44%. Scott relied on the use deceptive ads about Obamacare. In some congressional districts, lying repeatedly in a campaign ad is the surest way to become a lifetime incumbent.

The alleged conservatives in the 4th Congressional District overlooked the allegations about Scott's marital affairs and his urging one lady to have an abortion notwithstanding Scot's purported strong pro-life beliefs. Abortion (UPDATE) Those same voters would not have overlooked the same issues from a Democrat candidate even without the abortion angle (e.g. Bill Clinton).

The GOP in Tennessee now has a supermajority in the state legislature, consisting largely of legislators that tilt toward extremism, unless you believe that moderation involves legalizing the carrying of concealed firearms in bars and children's playgrounds, or making it a crime to teach "gateway" sexual practices in sex education classes. Tennessee Passes Abstinence-Based "Gateway Sexual Activity" Bill | Examples of extremism are easy to find among Tennessee GOP faithful and present themselves almost daily.

A recent example of this extremism was the vociferous opposition to the republican governor's appointment of a well qualified attorney, who happened to be a Muslim, as the International Director for the Tennessee Department of Economic and Community Development. The governor also received scathing criticism from the GOP faithful for hiring a gay person.

Is any of that surprising to anyone?

After all freedom of religion, a basic conservative value ensconced in the First Amendment, is applicable only to Southern Baptists and possibly to the Methodists, Catholics and Presbyterians. The Flowering of Extremism in Tennessee; VOTER ID Law In TennesseeMore Inanity in Tennessee.

The underlying themes in this extremism is a superficial and restrictive view of the True Conservative values embodied in the Bill of Rights, other than the Second Amendment of course; a hostility to diversity; a lack of tolerance for different lifestyles and beliefs; a lack of curiosity that would promote learning; an inability to even acquire relevant and reliable information due to a rigid, immutable ideology that requires the rejection of all information inconsistent with that ideology as false; and a predisposition to reality creation even when the reliable evidence clearly supports a different conclusion, opinion or belief.

While the preceding describes a typical pseudo-conservative, none of the foregoing are consistent with True Conservative values and principles.

Notwithstanding the foregoing irrefutable observation, at least irrefutable to me based on tens of thousands of unbiased observations, I view myself as a True Conservative and have voted for several republican politicians, including Bob Corker (R) for the U.S. Senate; Bill Haslam (R) in the last election for Tennessee's Governor and Lamar Alexander (R). I also voted for Obama for reasons that have more to do with my very negative views relating to Romney and Ryan. I do not view the Ayn Rand and American Taliban wings of the GOP as embodying or promoting conservative principles. The GOP's Movement Toward An AYN RAND Vision for America; Paul Ryan is a Reactionary (Not a Conservative)-An Advocate of a Gilded Age Political PhilosophyGOP Comes Out of the Closet on MedicareMore Silliness from IdeologuesWhat is the Appropriate Political Label; Modern Day GOP: No Longer A Conservative Party. In my view, Romney is a pathological deceiver (just look at his ratings at Politifact), has no center or balance, blows too much with the wind direction, pandered too much to the wingnuts, and revealed his unpleasant true colors in a number of remarks including the 47% video.

5. Romney Won Decisively the Vote That He Wooed: As noted by Maureen Dowd in her NYT column, Romney is the President of White Males, who were shocked that their candidate lost. All of their white male acquaintances voted for Romney. About 72% of all voters are white, and Romney won that vote 59% to 39%.

For white evangelicals, Romney won 78% of the vote and 59% of the White Catholic vote. Those voters tend to live in a bubble in places like the SUV Capital of the World, where HQ is located, attend "conservative" churches with like minded individuals, and frequently belong to country clubs where Jews and minorities are, how shall I say it, not welcomed with open arms except as help. Those people are just in a state of shock that Romney lost the election to someone who is not really an American in their view. How could anyone (i.e. white person) vote for Obama, they would frequently ask?

Obama won by 36% among single woman (67% Obama to 31% for Romney). He won the married women's vote 53% to 46%. Exit polls 2012: Where Americans stood this election - The Washington Post

Five new women were elected to the U.S. Senate including one lady who is openly a lesbian, the new senator from Wisconsin Tammy Baldwin who defeated Tommy Thompson, a former governor and the Secretary of Health and Human Services from 2001-2005.

The good news for the GOP, assuming some change in their message to better disguise and cloak their  beliefs that turn off major parts of the electorate, is that the senate races in 2014 provide them with some good chances to pick up some seats, particularly in South Dakota and Arkansas. Tough 2014 Map-Washington Post

However, they blew even better chances in 2012 by nominating candidates like  Mr. "Legitimate Rape" Todd Akin in Missouri and Mr. "God's Will" Richard Mourdock in Indiana, rather than the sensible ex- Senator Richard Luger (R) who was soundly beaten by Mourdock in the primary.

Some of the GOP extremists believe that they lost the presidential election because Romney was not "conservative" enough. I am sure that the Democrats are hoping those "conservatives" can nominate their candidates in some of the 2014 senate races.

6. Fortunately the Election Did Not Come Down to Florida: I am not sure that I could have withstood another fiasco similar to the one that derailed Al Gore in 2000. Fortunately, the 2012  election did not come down to Florida again with their dimpled and hanging "chads". Apparently, getting their act together in that state is not a high priority. Florida finished counting the votes last weekend with Obama winning the state and its 29 electoral votes by 74,000 votes. That brought the electoral college total for Obama to 332 compared to Romney's 206. Election Results

The republican governor Rick Scott requested the Florida Secretary of State to examine why there were long lines. CNN Political Ticker One reason was that Scott and the GOP controlled legislature shortened the time periods for early voting from two weeks to just eight days, so perhaps the GOP Secretary of State Ken Detzner, a former beer lobbyist appointed by Scott, will point that out to his boss. The problem could be solved, of course, by having more voting precincts equipped with modern voting machine, but that would enfranchise voters and could lead to undesirable results.

7. Possible Massive Minority Voter Disenfranchisement in Arizona: An excellent example of how republicans are alienating minority voters by transparent efforts to keep them from even voting is provided by Maricopa County, Arizona, a long standing GOP stronghold. (see discussion of recent election issues in this NYT article; Maricopa incumbents win across boardRepublican Joe Arpaio Wins; Congressional representative Trent Franks is rated as a "far-right" republican by

{It is difficult to understand the appeal of a clown like Sheriff Joe Arpaio who is currently ensnarled  in a host of legal problems and recently claimed that Obama's birth certificate was a fraud based on the research done by a volunteer posse of concerned Arizona Tea Party members (i.e. birthers) Chicago Sun-Times I am not joking. Perhaps Arpaio and his soulmate Donal Trump are related in some cosmic way. Trump, who tried to breathe life into the birther movement earlier in the year, called for a revolution after Obama's victory, claiming that the recent election was a fraud. Mediaite.

While the so-called Tea Party may have some members who are new to politics, it mainly consists of the Wingnut and American Taliban wings of the GOP, who have always been around in extremely large numbers, millions of them really.

The barriers to voting erected in Florida and Arizona seem to be aimed at Latino and black voters and certainly could be legitimately viewed by those minorities as directed at them. That perception, more than any other issue, could turn an entire generation of voters against the GOP and deservedly so. It would certainly make me mad as hell.

The republicans in Florida and Arizona are making it extremely difficult for citizens to vote. Long lines at polling lines, with 4+ hour waits, are common. Phoenix-area voters frustrated by long lines, provisional ballotsFlorida Early Voting Fiasco. In this instance, I would agree with Al Gore who calls these practices "un-American" and further indicate, at best, a superficial, inconsistent, and limited belief in basic constitutional freedoms by those who profess to love freedom so much.

At least the GOP politicians in Williamson County Tennessee make it easy to vote, possibly because the county is about 70% hard core republican anyway, and it would not make any sense to deprive statewide GOP candidates votes by making voting a tortuous process. It took me only five minutes to cast my vote on election day. I timed it from the time I entered the voting precinct until I left in my car. Overall, the voting experience is far better in Brentwood than the Democrat controlled Nashville. While I am not going to draw any conclusions about that observation, some would argue that the republicans can be more efficient than Democrats when it serves their interests.

Michele Bachmann squeaked by her Democrat challenger in Minnesota's 6th congressional district. I am at a loss for words.

The Independent Senator Elect from Maine, Angus King, has decided to align himself with the Democrats. NYT 


  1. True the recent correction is nontrivial not in historical terms but still, see this spread showing some of your buys since 03/12. Top twenty I think I want to watch/review closely now with an eye toward buying. Otherwise I'm dipping again in WIN with you.

    So how much time do they have to do something cliffy?

  2. I thought that you were going to refrain from posting any comments Mr. Oregon.

    I have the same issues with your spreadsheet as I noted about the prior one. Several of these securities pay good dividends and the price needs to be adjusted to reflect the dividend. For example, I noted in today's post that GAM had just gone ex dividend for a large distribution.

    Buying shortly after such a distribution does make sense for a long term holder particularly when the price thereafter slides by a significant amount in addition to the value of the dividend, and the discount widens to net asset value. That is for a long term holder, and I doubt that observation has any relevance to you.

    I have sold out of SYMM, GSPRD, NRBAY, TEX (where is your comment?) and ACG. I trimmed my stake in GOV at 24.5 and have a <22 price target for re-entry.

    Some of the others are LTs. I own 30 VELT which was hammered yesterday after an earnings release. I am going to look at it more closely over the weekend and may do something.

    On the fiscal cliff, it is an unknowable factor. I suspect that there will be a 75% chance that it will be avoided as of 1/1/13, but not resolved other than for a few months. Even that resolution would likely come down to the wire.

    I would not be surprised by a standoff caused by the House Republicans which causes all Bush tax cuts to expire for everyone and another potential disaster on an increase in the debt limit is also a possibility.

  3. Thanks for your observations, there is a no need to have an issue with my spreadsheet, just a little crutch that I use sometimes, admire or ignore it. Re my postings I will do them from time to time, it's up to you whether they will appear or not.