AMERICAN INDUSTRY: END OF DAYS?

The stocks of American industrial companies are falling into the abyss. Many are reaching prices last seen in the mid-1990s.  It is common to see dividend yields of 4 to 6%.  I went back into my records to check how fast the fall has been just for the few that I have owned and sold earlier this year.  The sale price is approximate since I was looking at the price adjusted for brokerage commissions. 

Rockwell Automation (ROK) was sold at over 58 in May 2008 now down over 7% to 23 and change.

Dover (DOV) was sold at over 41 early in 2008 with a week holding period or so now at  26.7

Dow (Dow) was sold at over 39 in  April and now at 23.7

DuPont (DD) was sold during a rally day at over 45, now in just a month DuPont is at 31.3

GE was sold at over 38 in April and I started to buy back in the 20s.  I halted the purchases for the reasons discussed in prior posts.  GE is now struggling at 18 and change. (see post from 10 14: Time to Sober UP)  Yesterday's small purchase of Ingersoll Rand (IR) at less than one-half of my earlier sale this year is already under water. 

Caterpillar is one that I have not owned, and it continues a free fall similar to Deere which hit 94.89 within the past year and fetches 31 today.  I am not in the market for either Deere or Caterpillar stock this year.  If Deere falls to 15 to 20,  somewhere in its 1998 to 2000 range, I will take a serious look at it.  I am not interested in DOW now for the reasons stated in the earlier post today.

GE is another one that will have to fall further for me to add.  Its current price is back to where it was in the 1st quarter of 1997.  I am limiting myself now to reinvesting dividends to average down.  I will just add yet another link to a negative article.How GE Capital puts all of GE at risk - Oct. 10, 2008  

For today, near the close, I may do what I did yesterday and try to catch one of the industrials falling off a cliff.  I will limit myself today to catching a few shares in either DOV or ROK.  Any purchase now will have to be only a partial position, fully anticipating buying equally small positions later at lower prices.  Any holding period will probably have to be well into the long term capital gain holding period of more than 1 year to achieve an acceptable return given the current risk.  The higher dividend yields at the current low prices will help-as the price falls, the dividend yield goes up.

I have owned an ETF focusing on American industrial companies.  Vanguard is the sponsor and this ETF has to be bought in  100 share lots.  I sold it (VIS) in February 2007 at around 69.  After I sold it this ETF it rose to almost 78 by October 2007, when the bull market ended, and VIS has now fallen to 42.  It has a low expense ratio of around .22% with 306 holdings at last count.   SPDR has an industrial stock ETF that contains the ones included in the  S & P 500 (XLI)Industrial Select Sector SPDR (XLI), SPTRIDU Fund Detail | SSgA Funds - Fund This has an expense ratio of .23% and 59 holding with a large weight in GE as you would expect.  It has been some time since I owned it.  VIS is the kind of investment that I may make when the VIX settles down into a stable pattern, way way way below where it is now.

Notable News 10 23 2008: We Drank the Kool Aid

"We drank the Kool-Aid", said the Chief of Moody's. Ratings agencies 'put system at risk,' CEO says - MarketWatch He testified yesterday that the rating agencies became lapdogs rather than watchdogs.  Without their malfeasance, aiding and abetting Wall Street's schemes, the credit crisis would not have happened.  The only way for the toxic crap to be sold was for Moody's and Standard & Poor's to place their imprimatur AAA rating on the securities pools sold by the Street. Although this was done for their own financial gain, with everyone involved taking a big cut in the action before dumping the crap on investors worldwide, the rating agencies will claim First Amendment protection as "journalists" when sued by investors snookered into buying these "AAA" rated securities, now rated junk or worse. This is a notable article written by Gretchen Morgenson at the NYT about the agencies in 2005. The New York Times > Business > Your Money > Wanted: Credit Ratings. Objective Ones, Please.  This is a link to an article in the Scotsman, a paper from Scotland. Ratings giants in the line of fire - The Scotsman

Dow Chemical (DOW), one of the stocks that I sold at almost twice the current price a few months ago,  posted a decline in earnings and sales, with the CEO saying that Dow's customers started to cut back orders in September. The fall in oil and natural gas prices will help chemical companies like Dow, while the global slowdown will certainly hurt. The CEO claimed the dividend was safe. I have stayed away for now, partly due the global slowdown issue but I  also have concerns about the pending acquisition of Rohm and Haas near the top of the market for 18.8 billion. Fitch downgrades, may further cut Dow Chemical ratings - MarketWatch  Without the issue of taking on a lot more debt to buy a company, I might have considered taking a position in Dow early next year, but I have no interest now due to the Rohm and Haas acquisition. Instead I will just keep an eye on DuPont (DD) as a possible position in this sector. 

All of the job cuts that companies are announcing now will probably accelerate until the jobless rate hits 7.5 to 8% in my view. The first response of these large companies to a slowdown is to slash their payrolls.  

I could cite more but the forgoing makes my point. Job losses are a lagging indicator for a recession. The recession starts and then the losses accelerate as companies try to cope with a slump in demand. (usnews.com); Bloomberg.com 

I have changed my mind on keeping cash at 20%. I am going to stop dipping into it to buy common stocks at or below current prices.  It is just too tempting for an old gamer.

Dover (DOV) had an impressive earnings report, and all things are relative now. MarketWatch I know that I sold that one at much higher prices and I will need to do some research later this morning, since I am rusty on it. 

Japan's Stock Market

1. Japan's Stock Market: Just watching the baseball game and the Japanese market. The Nikkei 225 is currently down 6.61% to 8,101. It hit a low in March 2003 at 7972. It will probably crash below that low soon, and it will be interesting to see if the selling continues thereafter. My chart of this average only goes back to 1984 and the low back then was 10,000. If the Nikkei breaks below 7972, it would be headed to a low going back more than 24 years. Part of the problem is that the Yen is rising steadily against the U.S. dollar, as shown by the currency ETF, FXY, for the Japanese Yen. . FXY: Summary for CRNCYSHRS JPN YEN TR - Yahoo! Finance Yen Shines Through The Gloom - Forbes.com

Japan is an export driven economy so the slowdown in the U.S. and Europe will adversely impact their companies without more. ReutersWith the dramatic rise in the Yen, the export driven companies are hurt even more since the price of their products are rising in U.S. dollars and the repatriation of dollars back to Yen will buy less Yen.Reuters

2. The Japanese Yen and the International Bond ETF BWX: One of the bond ETFs would be favorably impacted by a rise in the Yen, the SPDR International Government Bond fund (BWX), which has about a 25% weighting in Japanese government bonds. It has fallen some recently, however, due to the dollar's rise against all other currencies including the Euro, the Australian and Canadian dollars, and the emerging market currencies- as shown in the chart for the currency ETFs for the Brazilian Real and the Indian Rupee.ICN: Summary for WISDOMTREE DREYFUS - Yahoo! FinanceBZF: Summary for WISDOMTREE DREYFUS - Yahoo! Finance The recent rapid rise in the dollar against currencies other than the Yen hurts bonds priced in those depreciating currencies for a U.S. investor in an ETF like BWX. It will also adversely impact U.S. exports to those countries by raising the prices of products made in the U.S. when priced in the weakened local currencies, and will also decrease the profitability of U.S. sales when those sales are converted back from a weak currency into U.S. Dollars.

3. VIX: The VIX shot up 31% today to 69.65.^VIX: Summary for CBOE VOLATILITY INDEX - Yahoo! Finance The fear is just off the charts. In my view, you can not even start a sustainable rally until this indicator calms down. Way way down.

4. REITS: I noted that REITs continue to be pummeled in a big way. Many of you have heard the saying that it was sometimes cheaper to drill for oil on Wall Street than in the field. The same is true for commercial real estate now. Part of the problem is from forced liquidation from players that are leveraged. There are several closed end funds, for example, that invest in REITs and keep leverage at about 1/3 of the stock holdings' value. As the values plummet, I would expect them to reduce their leverage and consequently the holdings purchased with borrowed money. Several REITs that own retail malls are having a lot of trouble, connected to the problems at General Growth Properties (GGP) that fell another 37% today to 3.05, having hit earlier a 52 week high of 54.53. GGP: Summary for GEN GROWTH PROP INC - Yahoo! Finance That company has 1.2 billion in debt coming due next month and another 3 billion in 2009, and refinancing is still up in the air.Reuters While General Growth has been hit the hardest, other REITs owning retail properties have almost fared as bad MarketWatch One that owns malls in middle Tennessee, including the one in Cool Springs and Rivergate, has been taken a 2/3rds hair cut in price over the last month, now trading at levels last seen in 1994, and it has done its new financings for 2008. Yahoo! Finance Of the ones mentioned, I have a small interest only in CB & L. But the whole sector is undeniably in a crack up, where fear of a lack of credit or credit on reasonable terms is just crushing all of the stocks.

I also noticed today that a hotel REIT, Lasalle Hotel Properties (LHO), cut its common stock dividend in half. LaSalle Hotel Properties Reports Third Quarter Results: Financial News - Yahoo! Finance I mentioned when I bought the preferred of another hotel REIT, Strategic Hotel (BEE), that I expected a common stock dividend cut for that company, and still do, and that is why I bought the cumulative preferred issue. I may take a gander at the Lasalle preferred stock issues later this week or next.

At some point during this meltdown, I am going to be drawn to a stock like S. L. Green (SLG) down over 16% today to 34.71, and it had a 52 week high of 122.45.SLG: Summary for SL GREEN REALTY CP - Yahoo! Finance This REIT concentrates its ownership in Manhatten and the greater New York area.http://www.sec.gov/Archives/edgar/data/1040971/000110465908051322/a08-18676_110q.htm It recently said it had no trouble refinancing two properties generating 160 million in capitaYahoo! Finance I am not going to commit to it this month and I will start with small positions gradually building in two or three installments a 100 share position. S L Green also has 2 $25 cumulative preferred issues that have likewise been hit hard recently, SLGPRC and SLGPRD.SLGPRD Stock Quote - Sl Green Rlty Corp Stock Quote - SLGPRD Quote - SLGPRD Stock Price I have bought 100 shares of SLGPRD.

5. Trust Certificates Containing A Senior AT & T Bond: I have been asked what I intend to do with the two Trust Certificates that I bought recently containing senior AT & T bonds, JZE and JZJ. I do not want or need any more short term gains this year, having already built up a large amount from sales earlier in the year. I am going to hold both of those securities for at least one year. If my best guess holds true, however, that AT & T will call the underlying bond within the next month or within the next six months (due to the high rate of the underlying bond and its unfavorable yield enhancement features), then I will have to take the $25 and recognize a short term gain. Hopefully if that is done, AT & T will wait until 2009. I have had a number of Trust Certificates called and the brokerage company handles it without commission. Here are links to the SEC filings:http://www.sec.gov/Archives/edgar/data/829281/000090514803004006/efc3-1720_5465077fm424b2.txt

and http://www.sec.gov/Archives/edgar/data/829281/000090514804000137/efc4-0051_5492393.txt

Based on what I believe to be the CUSIP for the underlying bond, 001957ND0, which you can check for yourself, it traded several large lots today between 91 to 92, about a 8 to 9% discount to par.

In these posts, I am acting as an unpaid financial journalist and an occasional ornery political commentator. This is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the blog. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.

Notable News 10 22 2008 & END OF DAY TRADES (IR, INTC, TE AND EHL)

The following article summarizes the reasons why commercial real estate is going to tank even more. Commercial real estate investment trusts have already been smashed. Based on a survey of professionals, a recently issued report from Price Waterhouse and the Urban Land Institute predicted negative returns in 2009 and a slow recovery during 2010. The stock prices of many REITs owning office buildings have already been cut by more than 50% over the past year, including those focused on prestige properties in upscale markets like New York, Washington, San Francisco and Boston, including S. L. Green (SLG), Boston Properties (BXP) and Vornado (VNO). For example, Boston Properties hit a 52 week high at 194 and recently was trading in the mid 60s.

Commercial real estate brokers, like C.B. Richard Ellis (CBG) traded at around 41 in July 2007 and it is now fetching less than 6. When you see that kind of carnage, you would expect the worse is over, at least for CBG, but it still reacts negatively when the market becomes spooked.  There are not too many more points to zero for that one, so it may be worth a 50 share nibble soon, with at least a five year holding period expected now for any purchase at the current depressed level, knowing full well that more bad news is to come.  With my risk profile, I can take a gander over the next few days, do some more research on CBG, and possibly buy some using  $200 to $250 and then just try to be very very patient. I elected not to do it today however with CBG down to 5.5.

At around 2:30, C.S.T., it was obvious that this was going to be a bad day so I entered a few odd lot limit orders for blue chips at more than 50 cents under the then existing market prices and they were all filled. My strategy, which seems appropriate for me under these market conditions, is to buy just a tad and then buy more only if the stock continues to fall. This is hard to do on a day like today.

Today, I bought Ingersoll Rand at 18.50, and the stock was at 19.2 when I placed that order. It blew through my odd lot limit order at 18.5, filling it on its way down to a low of 18.2, then the stock recovered some to finish down 7% to around 18.78. In February 2008, and I just checked this,  I sold out my position at over 41.  At my current price, the dividend yield is around 3.9%.  IR did issue a warning recently. MarketWatch IR said at that time it expected earnings of $3.35 to $3.55 this year, which may be optimistic now with the abrupt slowdown, but at my price today I am only paying around a 5 P/E for a pretty solid industrial company. IR: Analyst Estimates IR just completed an acquisition of Trane. I read again all the recent reports that I have including the ones from Value Line, Morningstar and S & P  as well as all of the reports for the next one discussed below. 

I also placed an order to buy 50 Teco Energy, an electric utility operating in Tampa, at 13 and it filled, in similar fashion to the Ingersoll order.  It was placed at a price well below the market with 30 minutes to go and just blew through it to 12.82 before recovering to 13.32. At my cost, it has about a 6.15% yield.  

I also added to my recent initiation of an Intel position by buying an odd lot at 14.46. see prior post: INTEL  This blue chip company is now slightly below its low seen in 2000 and 2002 at around 14.8.  The yield for this cash rich company is coming closer to 4%.

Lastly, I bought 100 shares of an Entergy Louisiana First Mortgage Bond (EHL) at 22.75. Entergy (ETR) is a very large electric utility operating in the south, similar to Southern (SO). This is a link to ENTERGY'S  profile.

The service areas are Arkansas, Mississippi and Louisiana. In Louisiana, its subsidiary used to be known as Louisiana Power & Light.  This security is basically a First Mortgage on all of Entergy Louisiana's assets.  www.sec.gov It has a separate sub for New Orleans based on a review of its SEC 10-Q filing. www.sec.gov The First Mortgage Bond that I bought today has a coupon of 7.6%, a par value of $25 and it matures on 4/1/2032 unless redeemed earlier at par and accrued interest.  It pays interest quarterly and it has already gone ex-interest for the September quarter.  At my cost, the effective yield is 8.35% for a security that is a First Mortgage. I also considered buying today another First Mortgage bond from Entergy Mississippi (EMO), www.sec.gov, that has a lower coupon at 7.2% and was selling at a slightly higher price than ETR. 

I also mentioned in a prior post that I would be adding to a mutual fund, at the bare minimum allowed, on bad days and this certainly qualified, so I added to Janus Balanced. Buy High & Sell Low /Retrospective on the Good & Bad

I can only say that, if we have another waterfall tomorrow, I will probably be placing some odd lot orders for dividend paying blue chips well below the then existing market at around 2:30, like today, but I will not be spending too much of my cash in any given day. When you get a serious down move like today, with most of it toward the close, I also believe that it has to do with forced redemptions pursuant to margin calls, to individuals and to hedge funds particularly, and mutual fund sales to meet redemptions, and I suspect that individuals are throwing in the towel big time this month.  So, for many, doing what I do is not an option. I just view this as another opportunity for someone who has the stomach for it and you never get use to bear markets as bad as this one. A player still has to play the game.    

In these blogs, I am acting as an unpaid financial journalist and an occasional ornery political commentator.    This is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In these blogs, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always view the prospectus for an investment like EHL before considering making an investment.   The same is true for Trust Certificates, preferred stocks, bonds and bond like investments.

HERTZ BONDS: Fitch

Fitch affirmed its ratings of the Hertz's debt but changed the outlook from stable to negative.Fitch issues ratings action on Hertz: Financial News - Yahoo! Finance  The rating on the senior unsecured debt remains at BB-, which is a junk classification.  The Trust Certificate for the Hertz bond maturing in 2012, DKR, is up 23% this morning to 12.6.  For prior discussions, see my two earlier posts: TRUST CERTIFICATE HERTZ BOND DKR HERTZ BONDS  DKR is up 100% since my purchase on October 13th.  For a risky investment like this junk rated senior bond, which I am unable to resist, I am always alert to the downside, even more so than the potential large reward in the event Hertz stays out of bankruptcy until June 2012.  At some point, the gain will become to large to ignore and will have to be captured, at least in part.  The potential gain on this one, as I noted, is about 75% tilted to a narrowing of the spread from the $25 par value, payable in 2012 (with the 75% being the annualized amortization of that  spread),  and my cost, with the only 25% or so being the dividend (annualized based on my cost), for a total of 100% annualized based on my cost.    If I can capture a large part of that 75% fairly quickly, as in 6 months, I may not take the chance of trying to capture the 25% over the remaining life of the bond, or, at a minimum under those circumstances, paring my small position by one half.  

TRANSITION IN WORRIES

Today, reading the financial news, I was struck by the fact that all of the worries now were about earnings and the recession rather than a collapse of the banking system and the credit crunch. An earlier post from October 14th made the point that Wall Street would certainly find a new worry-earnings. Time to Sober UP  This is what I said then: " Once the euphoria subsides about the radical and innovative plans to save the financial system from collapse, the forces at work on Wall Street will find something else to worry about and they will not have to wait long to find it this earnings season as witnessed by what is happening to Pepsi today."  

Personally, I believe that most stocks have already gone down enough to compensate for tough economic times. A bear market can over shoot on the downside just like the bull market of the 1990s went way beyond rational levels on the upside.  The emotions of fear and greed will always be more powerful forces than cogent, logical thoughts.  

This concern with earnings will likely continue into the first quarter of next year. Once investors see that the banks are lending, and the credit crunch has eased, with no more major failures of financial institutions after the passage of many weeks, then at some point next year they will start to look to the future rather than the present and stocks will start a new bull market. 

I was premature in starting back into the emerging markets.  That is why I am taking baby steps.  With another 25 investments or so like I made the other day I will be at a full position in the emerging market category.  So, I expect to be early with some of them.  The key for me is to sell into a strong rally and start buying back after a severe decline, which is what I have done so far.  This means that I will never be selling at the absolute top  (unless I just get lucky) or buying at the absolute bottom.  Without checking, my sells in emerging market stocks occurred in two separate years, 2006 and 2007, so my buys will be similarly spread out.

Since I own ING preferred issues (IND and INZ), I read this WSJ story that concluded that ING received money from the Dutch government on favorable terms. WSJ.com

I do not intend to add any shares to my current position in these preferred shares due to their hugh rally off recent lows.  I will likely keep one of the two recent purchase on INZ because it pays me, as I noted in a prior post, 22.9% annually, in quarterly installments, based on my purchase cost.Some Nibbles Got Filled: JZE, PJS, INZ and FAX (from Oct 10th). The higher cost INZ shares using FIFO accounting were sold for about a 40% gain in a few days.

I will always narrow my focus for the day, looking for a few select opportunities.  The screaming opportunities in Trust Certificates has largely evaporated ( for a discussion of what a TC is see Trust Certificate JZJ AT & T BOND and you have to scroll way down through the political discussion to find it).  Instead, I am looking today at first mortgage bonds that trade as securities on the exchange, one emerging market stock, and a possible nibble at 1 of about 5 large tech names that I previously mentioned that I would be doing gradually of course.

Notable News for Today 10 21 2008

The three month LIBOR rate continues to fall from its recent high, a tad over 4.8%, with the setting this morning at 3.83375%. Libor's Move Downward Continues - WSJ.com As I mentioned in many posts, this is relevant to the floating rate preferred stocks.   If it continues to fall, and a normal spread between this rate and the three month treasury bill rate ensues, then the LIBOR portion of the yield equation will not provide much benefit, if any, in the short term over the guaranteed rate in these securities.  They do provide some protection in a rising interest rate environment while providing a yield floor that is attractive with the current low interest rates on alternative investments. Floating-rate Preferreds

The midwestern banks continue to struggle with Key Bank (KEY) , Fifth Third (FITB) and National City (NCC)  posting losses for the third quarter.Ohio regional banks post quarterly losses, build reserves - MarketWatch  I viewed the report from Key simply because I have a position in KEYPRA, with  shares bought at 7 as indicated in an earlier post.  I have about a 71% gain in those shares and maybe I could switch to something else that has more attractive features, like seniority and and outside of the less than favorable preference rules of the FDIC.

MMM had a generally favorable report and did not change its outlook. 3M net climbs 3.2% on nearly $7 billion in sales - MarketWatch3M posts 3rd-quarter gain on higher sales abroad: Financial News - Yahoo! Finance  The stock is rallying this morning.  I have always liked this company but I got nervous a few months ago and sold my position about $20 higher than it is today.  This is one company that I monitor and I will return to it within the next year I suspect.

Caterpillar, which has been cut in half from its 52 week high, reported that earnings were down about 6% from the year ago quarter, but reaffirmed its outlook for the remaining part of the year. Caterpillar profit falls, maintains 2008 forecast | Markets | Markets News | Reuters Sales  rose 13% to almost 13 billion, due to the continuing strength in emerging markets offsetting the slowdown in the U.S.  I do not own this one, but will consider a small odd lot purchase if it continues to fall.  The dividend is over 4%.  I doubt that I will take even a small position before the 2nd quarter of 2009 unless it tanks in a big way before then.

With some of the investments that I make, like BEEPRA yesterday, these are very small positions for me.  I would not miss a beat even if it went to zero.  I took a small position which reflects my personal evaluation of the potential downside, evaluated first, compared with what I was being paid to take the risk, which was a very large dividend yield at 28% annualized, plus the possibility of capital appreciation, all taken in the context of my unique risk profile and financial position.     The preferred issues had been cut in half during the recent troubles.   After measuring and balancing those risks, I did not take a significant position when buying just 100 shares.  You have to be mindful of the potential downside and whether you can afford a realistic possibility of the stock going poof.  I much prefer dealing in higher quality investment grade debt that is being substantially mispriced,  as was the case with many TCs discussed earlier like the two containing senior debt from AT & T with JZE rallying 50% off my buy point at 12.5, but I can not ignore these speculative positions that pay me outrageous sums provided they stay out of bankruptcy.  The Hertz TC is probably the highest yielding, most risky one, discussed in two prior posts, that would give me a 100% annual return based on my cost for about 3 1/2 years assuming it survives for that long. TRUST CERTIFICATE HERTZ BOND DKR

HERTZ BONDS

Michele Bachmann: Sarah's Soul Sister

It is only recently that Representative Michele Bachmann, a Republican from Minnesota's 6th District, crossed my radar screen.  Ms. Bachmann, like my representative Marsha Blackburn, Ann Coulter and Rush Limbaugh, blamed poor minorities for the credit crisis, a view that I am unable to share, since facts get in my way which never seems to bother this crowd.Minnesota Independent: News. Politics. Media. » Bachmann: Blaming minority lending for economic crisis ‘does not mean I’m a racist’Activists Angered By Blame For Crisis - washingtonpost.com chicagotribune.com   This caused me to find out a little about her.  Michele says she was a Democrat but became a Republican after reading Gore Vidal's 1973 "Burr", for reasons that would not make any sense to those who are not already brain dead. Michele Bachmann - Wikipedia, the free encyclopedia  The rest of the Wikipedia article explains why Michele was meant to always be a member of the Taliban wing of the Republican party.  She wants to teach creationism in the public schools as science.  Bachmann is a member of a church that is part of the Wisconsin Evangelical Lutheran Synod whose "doctrine teaches that the Roman Catholic papacy is the Anti-Christ identified in the Scripture."  In her own words,  God called upon to run for Congress.  While a member of a school board, she refused to allow the Disney movie Alladin to be screened because in her view it promoted "paganism".  When she was criticized for that view, she resigned from the school board believing any criticism of her position on the Disney movie was anti-Christian discrimination, as opposed to assessing her own position as just plain nutty.    She is supported by James Dobson, as you would expect, the one who wanted to ban Sponge Bob Squarepants for promoting a gay agenda. The rest of her views are predictable.

The foregoing is not why I decided to talk about Michele. We all know that there are millions of Michele Bachmann's in the U.S., and their thought process is virtually identical as if they were all created from the same cookie cutter, imbued with a few cliches and then sent on their way to turn the American public schools into an Americanized version of the Madrasas.

What caught my attention recently was her interview with Chris Matthews.  In that interview, she questioned whether Obama has "anti-American views" and called for an investigation into whether members of Congress were "pro-America or anti-America".CQ Politics | Self-inflicted Wound Puts Bachmann in Jeopardy 

This is a quote:  "The news media should do a penetrating expose and take a look. I wish they would. I wish the American media would take a great look at the views of the people in Congress and find out are they pro-America or anti-America. I think people would love to see an expose like that,” she said.

This is basically the same tact that Sarah is taking on the campaign trail, although Sarah is a tad more subtle and possibly more intellingent than Michele. McCain, Palin turn to risky politics :: CHICAGO SUN-TIMES :: Mary MitchellSusie Hoeller: Sarah Palin -- A Demagogue in a Skirt

Now, I voted for Lamar Alexander (R) for the U.S. Senate in Tennessee.  Generally, I view Lamar as an intelligent conservative.     What exactly is Michele Bachmann?  She has a great deal in common with Sarah.

I noticed a comment that has been repeatedly uttered by Sarah recently that her "faith in God" has been mocked in the campaign.Palin: Faith, God in General has been Mocked Through this Campaign - The Brody File: David Brody Blog - CBN News  She did not give an example and I am not aware of one.  I would submit that these kind of comments have at its source the same chip of the shoulder complex that caused Michele to resign from the school board, both have the mind set that any criticism of their policies is an attack on their religious beliefs.   Or, possibly, Sarah's repeated incantation of this remark is just a cynical political maneuver to make evangelicals angry  so they would be motivated to vote in the election.

Emerging Markets (REVISED 9 p.m. 10/20/2008 to include more references)

Last year, I finished selling a position in SSGA Emerging Market mutual fund (SSEMX) down to what I characterize as a bare minimum position.  I kept a 100 share position which was already paid for by profits and capital gains distributions, "playing with the house's money".  I look at it for a possible add today, noting that it paid its capital gain distribution into my account today which I have been taking in cash for two years now.  Instead of adding to it, I decided to buy instead a 50 shares position in an ETF from Powershares called Emerging Market Technical Leaders (PIE), filled at 10.01.InvescoPowerShares.com - DWA Emerging Markets Technical Leaders Portfolio - PIE  For an ETF, it has a high expense ratio of .9% and has 99 holdings.  It is down from about 25 at the start of the year when it was introduced, hardly an auspicious beginning.  As I have said in the past, however, the emerging market asset class is extremely volatile, both up and down, and it is not surprising that many of these markets have fallen more than the U.S. this year, but they also rose much more during the bull market from 2003 to 2007 too.  

I added for bro this morning a better ETF, called Vanguard Emerging Markets at near the low for the day.   The symbol is VWO.   I failed to add in my account and it is up  a buck.  With the Vanguard ETFs, the minimum order is 100 shares so I could not buy just 50 shares of that one.  VWO  has a much lower expense ratio at .25% and a much broader spectrum of stocks, almost 900 which can be a good warm blanket but a more focused fund could do better or worse.  Another ETF that I bought and sold in 2007 for bro is ADRE, which has 50 ADRs from emerging market countries in the ETF.  InvescoPowerShares.com - BLDRS Emerging MKTS 50 ADR Index Fund - ADREIt has a slightly higher expense ratio at .3% and would be more focused on larger and more established companies than the one from Vanguard, which would include many small and medium size companies.   Lastly, another ETF with stocks from emerging markets is from Wisdomtree, and its hook is to focus on dividend paying companies.WisdomTree - WisdomTree Emerging Markets High-Yielding Equity Fund (DEM)  It has a higher expense ratio than VWO or ADRE at .63%. 

 SSGA has one with a .6% expense ratio with 475 companies, with a 18.37% weight in China, 14.82% in Brazil and 12.36% in Taiwan.SPDR S&P Emerging Markets (GMM), STBMEMU Fund Detail | SSgA Funds - Fund Detail  SSGA also has several sub-categories of emerging market ETFs such as SPDR BRIC 50 and  and SPDR Emerging Middle East and Africa. SPDR S&P BRIC 40 ETF (BIK) Fund Detail | SSgA Funds - Fund DetailSPDR S&P Emerging Middle East & Africa ETF (GAF), STBMMEU Fund Detail | SSgA Funds - Fund Detail 

The SPDR BRIC only has 40 holdings, an expense ratio of .4 rising to .5 in 1/2009, and  47% in China and 26% in Brazil.

Compare the SPDR BRIC to the this one.  Claymore also has an ETF focusing on BRIC (Brazil, Russia, India and China) that has 86 securities and 54% weight to Brazil and 32.73% to China, with an expense ratio of .6%.Summary - Claymore/BNY BRIC ETF - EEB

 For smaller Chinese companies, I am considering an odd lot purchase in Claymore's China Small Cap Index (HAO) but only when the market value narrows to the NAV,Summary - Claymore/AlphaShare China Small Cap Index ETF - HAO

See also, Have Emerging Markets Become Submerged Markets?: Financial News - Yahoo! Finance

The category of emerging markets is high risk and volatile.  By carving the total market that VWO covers into sub-categories, the risk expands.   Yes, BIK, the SSGA SPDR BRIC, was up almost 10% today to 15.50 but it was at 34 five months ago.  The BRIC ETF from Claymore was up 7.6% today to 26.89 down from a 52 week high of  58.29.  And it rose from about 25 in January 2006 to 58 in  October 2007.

I only allocate a very small percentage of assets to this category and will trade it frequently, hoping to avoid the frequent downdrafts recently experienced by all of these funds.   

 

This is not a buy and hold category for me, never has been and never will be, but a category that has to be traded in my view. I try to avoid 70 to 80% "corrections" and I did for this asset class, harvesting my gains prior to the start of 2008.   I will only use mutual funds or ETFs in the emerging market category, except I will buy about 3 stocks  from Brazil and 1 from Chile.   You can not get greedy, or refuse to manage the investment.  Gains have to be harvested and re-entry points have to be guess at sometime after one of the periodic 50 to 80% corrections.  There is no telling when the bottom will be put in but now seemed like a good day to me to edge ever so slightly back into this extremely volatile asset class.

  In these blogs, I am acting as an unpaid financial journalist and an occasional ornery political commentator.    This is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a blog explaining my reasons.  The sale may before or after the blog.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  Different research would need to be done on ETFS including reviewing expense ratios, holdings, suitability in an overall plan for a particular investor, overlap with existing holdings (are their significant overlaps?) and volatility of the asset class.  In this blog, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all blogs written by me may not be suitable for others based on their unique financial position and risk profile.  In this post, I identify several ETFs that are available in the emerging market category and have linked any reader to the pertinent sites for more research.  Each one has its own advantages and disadvantages which would need to be evaluated.  All would be extremely volatile  ETFs.  

   

BEEPRA: STRATEGIC HOTELS PREFERRED A

I was a little surprised to see my limit order to buy 100 shares of Strategic Hotels Preferred A (BEEPRA) stock filled at 7.55 at the close.  There is generally a wide bid and ask price so limit orders have to be used and this one was fifty cents below the last trade when I placed it.  I previously sold for a profit another preferred issue from this company, BEEPRB, just a few months ago at over 16 and it has been cut in half since then.  So, this is not for the faint of heart, and even a nibble requires a high tolerance to risk.   This is a trade for me, with the last holding period being less than 2 months.

BEEPRA is a cumulative preferred with a $25 par value. The coupon on the "A" preferred is 8.5% and there is no maturity date, which is always bad.  This one has a .25% higher coupon than the "B" or the "C", which are both at 8.25% and that explains why I bought it today. The BEEPRA is no different than the other two except for the yield; and today at 7.55 it gives me a higher yield than the other two alternatives.

Dividends are paid quarterly. At my price, the effective yield is 28.14% annually. While the dividends are cumulative, no interest is paid on a deferred dividend.

About the only protection that you have, besides the cumulative feature, is that no common dividend can be paid in cash if the preferred dividend is skipped.  This is a common feature and it simply means that the common dividend will go first.  This is a quote from the BEEPRA prospectus filed with the SEC:

"..., unless full cumulative dividends on the Series A Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than in common shares or other stock ranking junior to the Series A Preferred Shares as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other dividend or distribution shall be declared or made upon the common stock or any other of our stock ranking junior to or on a parity with the Series A Preferred Shares as to dividends or upon liquidation, nor shall any common stock or any other of our stock ranking junior to or on a parity with the Series A Preferred Shares as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by us or any of our subsidiaries, except by conversion into or exchange for other of our stock ranking junior to the Series A Preferred Shares as to dividends and upon liquidation. "

Payment of the dividend in common stock is generally a permissible exception.

Strategic Hotels is a hotel REIT. I am already familiar with the company. You have to become as familiar as you can with the company before buying its bond or preferred issue.  It owns about 20 luxury hotels in major cities including London, Paris, New York, Miami & Chicago, in areas where the property can not be duplicated easily.   In addition to the preferred stock issues, the company has mortgages on 10 of the properties amounting to about 1.377 billion including the Westin St. Francis (220 milllion),  Fairmont Scottsdale Princess (180m), Marriott Grosvenor Square in London (154 m), Fairmont Chicago (124 m) and  Loews Santa Monica (118 m).  All of that data comes from the 10-q for the June 2008 quarter.  The preferred stock debt together is around 360 million.  The common stock is selling for less than 4 (BEE), down from a 52 week high of around 22,  which gives it only a 300 million market cap at the current price.  This company is leveraged to say the least, making it extremely risky, which explains why I did not buy the common.  In addition, the common has a lower yield than the preferred and is not cumulative, and the preferred has a higher claim than the common on the assets in the event of a bankruptcy.  The secured debt will always come first, and that explains why I looked for those figures in the SEC filing. 

Goldman Sachs recently lowered its target on the common to 5 from 8.2, saying as you would expect that business travel will be among the first expenses cut in a downturn. That is true, no doubt, which means a few tough quarters ahead and a dividend cut for the common is certainly a possibility.  Reuters  

I also read the S & P report that had a two star rating on the common which means a sell. 

Morningstar also has a good report that I re-read before buying the preferred.

The company also had to forfeit a deposit on a Chicago property recently when it decided not to follow through with a purchase.  On a positive note, Bill Gate's investment company owns more than 5% of the common. 

Needless to say, this investment is high risk/ high reward given its dividend yield, leverage and the downturn in business.

 In these blogs, I am acting as an unpaid financial journalist and an occasional ornery political commentator.    This is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a blog explaining my reasons.  The sale may before or after the blog.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news and all of that is true even if the investment is a bond or a preferred stock, since you have to make an assessment on the dividend or interest paying ability of the issuer.   In this blog, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all blogs written by me may not be suitable for others based on their unique financial position and risk profile

ING PREFERRED SHARES ARE RALLYING/ RULES of 72/114/144

My opinion of the Dutch's government's injection of over 13 billion into ING, expressed in my post last night, is being confirmed with a large rally in both the common and preferred shares.  INZ is up about 12% today.

I mentioned in a prior post that my yield on the 50 shares of INZ bought at 7.84 would be 22.9% annually (see prior post,  Some Nibbles Got Filled: JZE, PJS, INZ and FAX)  This is calculated by taking two figures, the coupon of 7.2% and the par value of $25, multiplying the par value by the coupon, and that gives you the annual interest payment due from ING ($25 x .072=$1.8 per year per 1 share)   To find out my yield at a $7.84 cost, I simply divide $1.8 in annual interest by my per share cost of $7.84 which gives me 22.9% annualized paid in quarterly installments.

I want to take it one step further and figure our how quickly my money will double at that return. One quick calculation is to divide the number 72 by the yield of 22.9 which would give me an approximation of how quickly it would double and the answer is 3.144 years.  This is not an exact answer so here is a link to a web site that has a calculator.The Rule of 72 (with calculator)  The correct answer is close to the estimate at 3.36 years.  

Use the rule of 114 to estimate the amount of time it would take to triple the money and the Rule of 144 to determine an approximate time to quadruple the money at a fixed rate of return.  (for my INZ at 22.9%, divide 144 by 22.9=6.28 years).  Now, this is not free money, for there is always risk in owning preferred shares in any company as witnessed by the recent events with the Lehman, Fannie and Freddie preferred issues, but this kind of return does give me a powerful incentive to hang onto the shares. 

ING Receives 13 Billion from Dutch Government

ING, the large Dutch insurance company and bank, operating in the United States the online bank ingdirect.com, will receive 13 billion from the Dutch government.  MarketWatch; ING to strengthen core capital by EUR 10 billion - ING The securities will be non-voting and "are pari passu with ordinary common equity meaning the Dutch State will rank exactly the same as common shareholders."  The Dutch government will receive 8.5% when ING starts paying common dividends again, a better deal for that government than the U.S. struck with our banks which gave the banks money at 5% for five years. ING can buy back the shares for 150% of their original value. ING said it would not pay a common dividend later this year.  

  

The WSJ said in its article that  the Dutch government would receive dividends only if ING's common shareholders are paid first. WSJ.com

I do not own the common stock.  I have mentioned in these posts that I had just bought 100 shares of a preferred issue (ticker symbol INZ) which has a 7.2% cumulative dividend. I noted a sale of the of the first 50 share lot, purchased at $10.11 on 10/08 and sold on 10/14 at $14.49, and that I was keeping the 50 share lot purchased on 10/10 at 7.84 (see Post= Partial sell on INZ COMPLETED)  

Even after buying a preferred stock issue, it is imperative that one continue monitoring the financial health of the issuer.  I knew on Friday that ING stock took a big hit due to concerns about its financial health, down almost 28% to 10.65. MarketWatch This caused me to be alert for events over the weekend, with my only interest being ING's financial solvency and its ability to pay the preferred stock dividends.

 While I can not be sure with the limited information available to me now, this deal with the Dutch government does not appear to require, or to likely,  cause a suspension of the preferred dividend and would strengthen ING's ability to pay the preferred dividend. If that is correct, the preferred shares should rally tomorrow. If INZ falls, then I need to acquire more information. But, as of now, I have realized a very short term gain of over $200 on 50 shares in a few days and I am currently up almost 100% in a few days on the other 50 which I intend to keep for at least 1 year. Even if a dividend is skipped on the preferred, it is not forgiven but merely deferred with interest accruing on the missed payment at 7.2%. This is from the prospectus:

"Subject to the payment restriction described below, we may elect 

to defer any payment (other than principal) on the ING 

Perpetual Debt Securities for any period of time. However, if we 

make this election, the deferred payment will bear interest at a 

rate of 7.20%. "

ING can avoid paying interest on a missed payment only if it is insolvent and that is not the case now. Missed interest payments and interest on them become due- mandatorily- in the event a common stock dividend is declared. Since the common dividend has at least been temporarily suspended, ING could elect to defer paying the preferred dividend if it chooses to do so but this would make it more difficult to raise capital by selling preferred stock in the future. 

These events provide a real life lesson on a reason to invest in preferred securities. ING is omitting it last common stock dividend for 2008 and that payment will be forever lost by the common shareholders.  I would anticipate the preferred shareholders will continue to receive dividends, and, even if one is skipped, it still has to be paid later with interest.  And all missed interest payments, plus accrued interest on those payments, would need to be paid before making a payment of a common share dividend.

Aegon, another Dutch company under increased stock market scrutiny, is not yet mentioned as seeking help from the Dutch government, but merely studying it. I own one of its floating rate preferred securities, AEB, discussed in prior posts. I will be looking to see how the events this weekend relating to ING may impact the pricing of Aegon common stock, symbol AEG, as well as the very distressed preferred issue that I own, AEB,  with a current 300 share position.

Palin and Supporters in Ohio/McCain and Freddie & Fannie

The following is a quote from an article in the Washinton Post about quotes obtained from Palin supporters at a rally in St Clairsville, Ohio:

  "From an older white woman: "I'm afraid if he wins, the black [sic] will take over. He's not a Christian. This is a Christian nation! What is our country gonna end up like?"

An older white man: "When you got a Negro running for president, you need a first-stringer. He's definitely a second-stringer."

A young white man holding a child: "He seems like a sheep -- or a wolf in sheep's clothing to be honest with you. And I believe Palin -- she's filled with the Holy Spirit, and I believe she's gonna bring honesty and integrity to the White House."

An older white man: "He's related to a known terrorist, for one."

An older white man: "He is friends with a terrorist of this country!"

An older white man: "He must support terrorists! You know, uh, if it walks like a duck and quacks like a duck, it must be a duck. And that to me is Obama."

A young white woman: "Just the whole, Muslim thing, and everything, and everybody's still kinda -- a lot of people have forgotten about 9/11, but . . . I dunno, it's just kinda . . . a little unnerving."

A white woman: "Obama and his wife, I'm concerned that they could be anti-white. That he might hide that."

An older white woman: "I don't like the fact that he thinks us white people are trash . . . because we're not!"Colbert I. King - A Rage No One Should Be Stoking

McCain frequently claims that he supported a couple of years ago legislation that would have increased regulatory oversight of Fannie and Freddie.  This is a link to an interesting article that points out that he did not sign on as a sponsor until a Republican lobbying firm had all but killed the bill on behalf of Freddie.AP IMPACT: Mortgage firm arranged stealth campaign: Financial News - Yahoo! Finance See also the analysis by Politifact on McCain's claims:PolitiFact | Ringing an alarm, not averting a crisis  There have been several articles written about McCain's campaign manager and other members of his staff having been hired by either Fannie or Freddie, or a lobbying organization controlled by them, to prevent legislation restricting or controlling their activities. Freddie Mac Money Trail Catches Up With McCain | Newsweek Periscope | Newsweek.comMcCain Aide’s Firm Was Paid by Freddie Mac Through August - NYTimes.comStumper : McCain's Boomerang ProblemThe Washington Monthly  Most of McCain's closest advisors were at one time lobbyists for Fannie or Freddie.   

There was an attempt by McCain to link Obama with Franklin Raines based on a blurb that appeared in a Washington Post article and this was the Post's response to the ad: 

 "An already nasty presidential election campaign is getting nastier. The meltdown on Wall Street has touched off frantic attempts by both the McCain and Obama camps to secure political advantage and indulge in guilt by association. Over the past 24 hours, both campaigns have issued what are, in effect, video news releases attempting to show that the other side's "advisers" are somehow responsible for the crisis. The latest McCain attack is particularly dubious.

THE FACTS

The McCain video attempts to link Obama to Franklin D. Raines, the former chief executive of the bankrupt mortgage giant, Fannie Mae. It then shows a photograph of an elderly female taxpayer who has supposedly been "stuck with the bill" as a result of the "extensive financial fraud" at Fannie Mae....

So what evidence does the McCain campaign have for the supposed Obama-Raines connection? It is pretty flimsy, but it is not made up completely out of whole cloth. McCain spokesman Brian Rogers points to three items in the Washington Post in July and August. It turns out that the three items (including an editorial) all rely on the same single conversation, between Raines and a Washington Post business reporter,Anita Huslin, who wrote a profile of the discredited Fannie Mae boss that appeared July 16. The profile reported that Raines, who retired from Fannie Mae four years ago, had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters."

Since this has now become a campaign issue, I asked Huslin to provide the exact circumstances of that passage. She said that she was chatting with Raines during the photo shoot, and asked "if he was engaged at all with the Democrats' quest for theWhite House. He said that he had gotten a couple of calls from the Obama campaign. I asked him about what, and he said, 'Oh, general housing, economy issues.' ('Not mortgage/foreclosure meltdown or Fannie-specific?' I asked, and he said 'no.')"

By Raines's own account, he took a couple of calls from someone on the Obama campaign, and he or she had general discussions about economic issues. I have asked both Raines and the Obama people for more details on these calls.

THE PINOCCHIO TEST

The McCain campaign is clearly exaggerating wildly in attempting to depict Raines as a close adviser to Obama on "housing and mortgage policy." If we are to believe Raines, he did have a couple of telephone conversations with someone in the Obama campaign. But that hardly makes him an adviser to the candidate himself -- and certainly not in the way depicted in the McCain video release."Linking Obama to Ex-Fannie Mae Chief Is a Stretch - washingtonpost.com

Buy High & Sell Low /Retrospective on the Good & Bad

The general thrust of individual behavior is to buy high, when it appears to be safe, and sell low when panic sweeps the market. It is very hard to keep emotion out of investing decisions. Trim Tabs reported 75 billion was pulled out of mutual funds in September. Seeking Alpha Hedge fund redemptions hit 31 billion during the last quarter, with assets under management falling 210 billion. MarketWatch One would reasonably expect an acceleration of redemptions for October, when volatility has spiked and the losses have accelerated with some of the largest daily moves in stock market history, both up and down. I did a fair amount of mutual fund selling last year and early this year. You sell into strength, not weakness. You accelerate buying in bear markets and sell when it is frothy. 

Somehow the common sense approach of selling into strength and buying into weakness is just impossible for individual to implement as shown in the anecdotal reporting from this weekend. I do believe that the losses suffered this year will convince many to avoid the market and that is understandable, but I am a player and will always be one.  

One way that I have survived is simply to avoid making big allocation decisions all at once. I will invest the cash raised over the past year and half  only in incremental amounts, picking and choosing my spots as carefully as possible, realizing that I have no idea how deep the recession will be or how long it will take to restore confidence, which is in very short supply. 

I suspect the market will turn up strongly even when the news remains troubling. 

People will forget or push the memories of the last few months to the back of their minds, and that will help to start the process of buying stocks again. 

As Buffett said, if you wait for the Robins to start singing in spring time, it is too late. 

One modification that I will make to my historical approach is to wait until volatility simmers down before making a serious re-entry. The use of this indicator was refined mid-year. Unfortunately, my model did not give me a clear signal to buy back the double short for the S & P 500 (SDS), missing the buy point by 1. With several months of the VIX below 20, I might even consider buying the double long ETF (SSO) for the S & P 500 to give me more potential upside, but that is only for those with a very high risk tolerance. Normally, in the past, I would dump all bond investments and re-allocate those funds to stocks. I will try to refrain from doing that this time, since I am running out of years to recover from these meltdowns. I will keep some individual bonds in my portfolio at all times from now on.

Part of the strategy will require that the short term notes which mature next year will not be re-invested in bonds but will be re-deployed into stocks. These notes are arranged in a ladder out to 2015 so I would anticipate buying stocks or stock ETFs will all of the funds generated from these short term notes coming due only in 2009 and 2010, unless there is a catastrophic external event that causes me to develop serious and new concerns which can not now be predicted or even contemplated now with a hyperactive imagination.  

The bubble mania in 1999 was a clear get out of the way indicator. It was not just internet and tech stocks. Stocks like GE were selling at one point at over 40 times earnings for example. 

Prior to the current meltdown, the market was not over valued like it was in the 1999-2000 period. This recession is caused by the most serious credit crunch since the Great Depression that has its origins the creation of a hyper state of leverage, particularly by investment banks reaching 40 to 1 debt to equity in some cases, and the careless, irresponsible and incompetent way that leverage was used to create and inflate a housing bubble, with housing prices rising to levels that could not be sustained by growth in income. 

A related problem, and of equal importance, is that the instruments created by Wall Street are so complex that they can not be valued and are not understood by the very people that created them. This causes all financial institutions to cease trusting the balance sheets of all other institutions. This is discussed cogently by the 92 old economist Anna Schwartz in this weekends WSJ. WSJ.com

When housing prices increased at 20% compounded, which happened in numerous markets from 2002 to 2006, with wage growth barely keeping up with a rise in inflation, reality had to set in eventually, though it always seems like a long time in real time living it, and thereafter bring prices back down to the level of affordability. 

The parabolic price rises in home prices in places like California, Florida, and Nevada were caused by the expansionary money policy of the Federal Reserve under Greenspan and the easy credit facilitated by the banks, with the investment banks playing the critical role in financing the expansion and eventual destruction of the non-bank mortgage lenders. Ms. Schwartz is very critical of Greenspan and deservedly so.

The mutual funds that I wanted to keep long term were sold down to 100 shares when the value of those shares exceeded $3,000 or to $3,000. 

Most of this selling was done when the Dow was between 12 to 14 thousand, with several total eliminations during the summer and fall of last year. 

I will now start to buy again shares of some mutual funds with the minimum allowed for purchase, and buying slowing, with no more than two or three adds per months, usually only on down days. 

I also substantially cut my individual stock position prior to the meltdown. Instead of relying on mutual funds for broad stock exposure, I will park most of my new money in individual stock selections and low cost stock ETFs. 

I am not impressed with these highly paid managers losing 40 to 50% this year. The S & P is down 35%.  

I will buy within the next six months two Vanguard ETFs that I sold last year- the Vanguard Large Cap ETF (VV) and the Vanguard World ex US (VEU), both are very low cost ways to get broad exposure to the markets. The Ishares ETF  for the total stock market (IYY) will also be bought back at some point.   

It is time for a retrospective on where I went wrong after having summarized what I did right. 

In retrospect, I made  at least four mistakes, with the fourth one being the largest. 

First, I thought that I was being conservative by switching some funds from a growth fund into a balanced fund. If it has stocks, even a 60% allocation to stocks and 40% to bonds, it will be hit hard during a bear market for stocks, so I have still lost by switching from Janus Contrarian (down 44%) to Janus Balanced (down 18%), though the loss in the balanced fund was less than 1/2 as much. 

Many 60/40 balanced funds are down 20% to 30% so far this year and many growth funds like Fidelity Magellan are down close to 50%. 

The Fidelity Balanced fund is down 30% this year which is awful and I do not own that one. I will keep the Janus Balanced fund and add to it now. But, in the future, when I get as worried as I was last year, I will not look for safety in a balanced fund, but will simply move that money to cash and keep it there until the issues causing me concern are resolved.

Second,  I switched some funds from a growth stock fund to a bond fund, particularly two from Loomis Sayles that were rated five stars by Morningstar. For comparison purposes, I would note that the Vanguard Total Bond market index fund is down 1%. For safety, I placed close to equal amounts in the Loomis Sayles Retail Bond (down a pathetic 26%) and their Global Bond fund (down a less pathetic 13% but still bad). I pay them for those returns. I have positive returns picking my own bonds this year.

I will rely on myself to make individual bond selections since I am doing far  better with my choices operating out of a home in the SUV capital of the world than these so-called highly paid experts. I will therefore not dive for cover into a bond mutual fund or a balanced fund in the future. Losing a little less money is not the option that I was looking for this year. 

Third,  after becoming concerned, as it turned out rightly so, I started to invest and kept investing in one of those funds that change the investment allocations based on a selected year for retirement, and then changing the investment mix as years go by to become more conservative. I thought that I was being conservative by selecting one with a retirement in 2010 which was the most conservative choice.

I dumped some of the funds raised by selling other mutual funds into that one rather than into cash and have suffered  to date a 25% decline. If I could do it again, I would not have started any new mutual fund investments until a bear market was close to a year old, as is the case now and then I might add to it monthly, and then stop two years after the next bull starts. I will keep the fund and hope for better results down the road.  

Fourth, I call this one the biggest mistake this year. I did not make any adjustments in my holdings of closed end investment companies which is one of my top 10 categories of investments when I soured on the market. Now, I have to adjust my strategy to dig myself out of this hole. I will reinvest dividends from most of the closed end investment companies presently owned  during the remainder of this bear market, and I will stop doing that after the second full year after the commencement of the next bull market, reverting to cash dividends at that time.

I kept my closed end funds this time, which was a major mistake in retrospect causing much of the losses suffered this year as a result of a double whammy, the fall in the market plus a widening of the discounts to NAV. Discounts to NAV hit unprecedented levels earlier in October 2008, with closed ends routinely selling at more than 30%  discounts to asset values. That is part of the opportunity and the risk with this asset class.

Eventually, the discounts will narrow to more normal levels, but that phenomenon, caused by widespread individual investor panic, and individuals are the main holders of these funds, has accelerated my losses in this category of investments this year.  My thinking was that the ones selected, which paid large monthly or quarterly dividends, would actually provide me with downside protection.

I took a starter position in JQC, as mentioned in a prior post, and traded in and out quickly on two others, FAX and AGC. One that has been good until this year is the Royce Value Trust (RVT), for small cap exposure. Royce Value Trust I have been using Evergreen International Balanced for exposure to international stocks and bonds, and this one pays a monthly dividend. International Balanced Income Fund - Fund Holdings Most of these funds are high yielding and that was part of a strategy to generate income and hopefully manage the investment by buying at large discounts and then selling when the discount to NAV narrowed, generally to less than 10% or near zero in some cases, thereby making a profit on the shares and keeping the large dividends. It worked until this year so I changed the strategy as outlined above. You have to be flexible and to learn from the past, being rigid, inattentive and careless are not prescriptions for success in this often treacherous field.