AEGON FLOATER (AEB)/ One of many floaters

UPDATED 6/05/09: I have a Gateway Post that contains links to my discussions about equity preferred floating rate securities and synthetic floating rate issues: Floaters: Links in One Post

Updated 1/19/2010: A more in depth discussion of the Aegon hybrids, and links to my posts on them, can be found at Aegon Hybrids: Gateway Post

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Someone inquired about the Aegon floater. I do not believe that I provided a link to the prospectus at the SEC which needs to be reviewed prior to purchase. Here is the link:

http://www.sec.gov/Archives/edgar/data/769218/000104746905027219/a2165248z424b5.htm

I would have to say that the AEB prospectus is more convoluted than most that I have read. The prospectus says Aegon will file for a listing on the NYSE under the symbol AEO, which is the symbol for American Eagle Outfitters. I did check the Aegon web site before making my first purchase to confirm the symbol as AEB. Capital securities - AEGON Group

Since I am already familiar with the boilerplate prospectus language typical for most preferred stocks, AEB being an exception, which seems to originate from the same word processor irrespective of the issuer, I only glance at the general language now, focusing instead on the main issues contained in a preferred stock prospectus. Is it cumulative? When and how can the dividends be deferred? Is interest payable on a suspended dividend? Is there a maturity date or is it perpetual redeemable only at the issuer's option? (generally preferred stocks are perpetual for the most part, whereas securities called "Trust Preferreds" do frequently have a maturity date but they are really junior debentures, with Trust Preferred issues having different bond characteristics than the typical preferred) The issues contained in the four corners of the prospectus are not the main issue. The main issue is always and simply the ability of the company to pay the dividend now and in the foreseeable future. While the preferred stock is considered equity, a preferred stockholder has no real equity in the business. The only consideration outside the prospectus for me as a preferred shareholder then is the solvency and dividend paying ability of the issuer.

There are many floaters, and only some of them are discussed in these blogs. Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes I generally only discuss what I own or have owned. I own close to 300 securities so I do not have the time to discuss all of them let alone what I do not own. The best floaters, right now, in my view are those that provide the greater of a minimum guarantee or a per cent above three month LIBOR. Possibly the most undesirable one which has a float tied to LIBOR, which I do not own, is UBSPRD which does not have a guarantee, which is most undesirable for this kind of issue, and it floats a mere .70 over one month LIBOR, which makes it even worse. That is why I have not discussed it. I have no plans to buy it when the alternatives are clearly better.

There are adjustable rate issues that do not provide a guarantee but float a certain per cent above CPI. I have discussed these in several posts.

CPI and CPI Floaters-OSM/CDs v Treasury Bills in Dynamic Asset Allocation/ Numb to bad news

Inflation or Deflation: Bond Alternatives/

CPI FLoaters PFK AND OSM/ Warnings by Chip Companies/FDX

Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM

There are others that float with the greater of a guarantee or some other rate other than 3 month LIBOR. I recently discussed one of those that I bought, PYV.Buys of a First Mortgage Bond EMO and a JPM TC PYV For that one, the likely rate will be the guaranteed rate until it matures in 2014, and the main reason for buying it was the combined return of the current yield and the spread between cost and par at maturity.

There are a few others similar to PYV that I will discuss in the event I decide it is worth an expenditure of my capital. There are many others that do not have a minimum yield and are tied to a narrow spread above some currently undesirable rate like the three month treasury bill. These are barely worth monitoring for me let alone discussing. How excited can one become about a 1/2% spread over a 3 month treasury bill which is now close to nil? I will just look at those kind of floaters once a month now. Only one is mildly interesting due to a substantial discount to par value, a solid issuer, but it generates nominal current interest with a distant maturity date.

When deciding to invest in a preferred stock, and this always bears repeating, remind yourself of what happened to investors in the floating rate preferred issue from Lehman and the investors in Fannie and Freddie preferred stocks. Sometimes, as Will Rogers said, the return of your money is more important than the return on your money.

ADDED AFTER AFTER ORIGINAL POSTING (at 12:02 p.m. 12/29/08):

I would add something else that I mentioned several times, floaters like AEB and METPRA have been known to me for some time, possibly extending back to their original issuance. I had no interest in them until late this year when the guarantee became enticing at the currently depressed prices. Of the ones that I discussed, only AEB still holds some interest for a possible add due to its extreme discount to par value which juices the guaranteed yield for a new purchaser. At 7, the guaranteed 4% is worth 14.2%. The LIBOR provision gives some protection against a surge in short rates caused by inflation or even a credit crisis when banks cease to trust each other, as shown a few weeks ago when this rate came close to 5% before falling back below 2 (now at 1.47% Markets Data Center Home - Market Data, Indexes, Stock Quotes & More - WSJ.com, indicating a relaxation in the credit crunch for inter-bank lending) If these securities had a maturity date, then they would be more interesting. (OSM and PFK have maturity dates which is a plus and the dates are 10 years or so in the future which is another plus, but they are tied to CPI with no guarantee.) The lack of maturity date may ultimately mean the current discount to par value has meaning only because it juices the yield, not because there is a realistic possibility of capturing the spread between the current price and the $25 par value. As mentioned earlier, the only way that one of these might be called is for the LIBOR to shoot so far up for an extended period of time, when the long term rate is lower than the short rate, so that it would make sense for the issuer to redeem the floater tied to 3 month LIBOR and replace it with other debt. This may happen, with an inverted yield curve, but this is not likely to happen anytime soon and certainly would not be a grounds for buying one now. I did not know about the Merrill floater discussed in Bary's column but look at this way. It is just as well. It was sold to the public last year at $25 and was trading below 9 last week. At last Friday's closing price, it might generate some interest in someone like myself, but I already own BACPRE and I underweight perpetual preferred stocks. If I was going to add to some position in this underweight category, why would I go with MERPRL, which has the same guarantee at 4% as the Aegon floater, but sells at a significantly higher price with a less advantageous Libor provision at 1/2% vs. 7/8%, unless of course you feel strongly that Bank of America is a much better credit than Aegon. But the Merrill and BAC floaters are clearly non-cumulative whereas I believe AEB is cumulative but it is a little hard to tell for sure given the convoluted nature of its prospectus.

DISCLAIMER:

I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities 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 this post, and all others by me, 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. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.

Is there any there there? Negative Article in WSJ on Mall REITs

Sometimes, there is no there there.  What was really there in terms of assets when Lehman filed for bankruptcy after its 158 years in existence.  Sure, some small dividends were paid to the stakeholders over the years but the only real beneficiaries over its entire history were its employees.  WSJ.com

When credit is pulled, the game just comes to an abrupt end. If all assets owned by U.S. citizens and our governments (state, local and federal) were sold today at fair market value, would there be any equity left after paying off all debts, public and private? Is there really any there there anymore?

There was a study released last week, based on data from the Federal Reserve, that credit is available and the problems originate from just a few lenders. Reuters  This report suggests the credit crisis is being way overblown by the media.  Shortly after reading that article, I started reading an article in the NYT about Vornado Realty having to suspend, due to lack of financing, its construction on a 700 million dollar redevelopment of its One Franklin project in Boston.  The deal was funded with a 40% equity stake and a great deal of the space had been pre-leased.  It looks like a viable project. Nonetheless, the developers could not put together a 400 million loan from the banks now flush with taxpayer money.  This project would create 3000 construction jobs for 3 years. NYTimes.com   It may be that lending has dried up from the brazenly incompetent large financial institutions- whose competence is largely confined to losing hundreds of billions in exotic ways - while the smaller regional banks are still lending to their traditional customers who need loans measured in the thousands rather than the millions.

There is a negative article in the WSJ about REITS that own malls, which mentions CB & L Properties and Glimcher in particular.  It is noted in this article that the common stocks of both Glimcher and CB & L have recently experienced spectacular bounces, with Glimcher up 250% since its November low and CB & L up 150% since 12/1.  Then being a party pooper, the WSJ suggests that these gains may be premature and mentions a few commonly known bearish details about the health of the retail sector.. Dismal Outlook for Mall Owners - WSJ.com

I have discussed the many negatives for those two REITS in prior posts.  

MARKET OBSERVATIONS: LNC, M, GE, C, GRT, GRTPRF AND LEVERAGED CLOSED END FUNDS

CB & L PROPERTIES: COMMON STOCK DIVIDEND CUT.

A 300 Point Misunderstanding

Notable NEWS 11 28 08: BAC GRT/ WHERE IS THE SANITY

Paulson NBR Interview, Zuckerman editiorial, LNC INZ, DKR, XFL AND DD

GRTPRF: A WALK ON THE WILD SIDE/ KTN add

MARKET OBSERVATIONS: LNC, M, GE, C, GRT, GRTPRF AND LEVERAGED CLOSED END FUNDS

In these posts, I mentioned buying recently GRTPRF, CBLPRC and CBL (only 40 shares at less than 4). I did not mention the buys of GRTPRG & GRT.  I would estimate that 90% of my position in these two REITS is in cumulative preferred stocks, with the Glimcher buy of GRTPRF increasing in value by over 100% in a few weeks. The reasons for selecting the preferred stocks over the common are discussed in detail in prior posts.  These kind of issues presented serious opportunities and risks when purchased, with the largest risk being the debt load and the constant need to refinance it, which is also mentioned briefly in the WSJ article.  If I was going to take some off the table before year end or early next year, it would probably be the incredibly wimpish buy of 50 GRT which I was too ashamed of to even mention. I believe that Glimcher's common and preferred issues go ex dividend today.  If I continue to take a long term risk with these two mall REITs,  it will be most likely in the cumulative preferred issues.  It does not take long for an investment to double at 75% per year.   Although it is not knowable until it happens, a preferred shareholder may receive something in the event of a bankruptcy whereas a common shareholder in a defunct highly leveraged REIT will likely be left with nothing but a good tax loss.   I would reiterate, however, my earlier comment that I suspect that the investors in Glimcher's preferred shares are a nervous lot, and will soon start worrying about whether the next preferred dividend will be paid.

I would like to congratulate one nephew for being one of the 12 Americans selected in the People to People 2009 Peace Camp in Jordan and another for winning an award for his album at the 2008 International Bluegrass Association.   My accolade for 2008 is that I have lost less money than most individual investors this year. 

Cure for a Lush: A limitless supply of alcohol?/SYK a short?/WaMu: Just another example Socializing risk and Privatizing rewards

If I was paying someone to come up with a short idea, I would hope for a better idea than Stryker. Barrons.com Stryker did reduce guidance recently for 2008 to $2.82 to $2.84 excluding a restructuring charge. This was about three cents or so below analyst's expectations of $2.87. The guidance was due to a rapid contraction of hospital budgets. MarketWatch 

In the interview in Barron's, Mark Roberts expects a 30 price on a mere 9 times his estimate of $2.95 for 2009, or close to no growth from currently anticipated 2008 earnings with a low multiple attached to the pessimistic forecast to boot. It is possible that many discretionary  hip and knee replacements will be postponed.  Some investors may be disappointed by the short term impact on Stryker's (SYK) business caused by the economic downturn. With SYK already cut in half from its yearly high and now selling at around 14 times 2008 estimate, I would not be trying to catch a few points more points on the downside myself. I can only say that a 30 dollar price tag on Stryker, which is just 9 times Roberts' distressed earnings estimate for 2009, will have at least one buyer that I know well.  Currently, the consensus for 2009 is $3.19 

Sometimes I read a column by a liberal columnist  that contains a kernel of conservative thought. The column by Bob Herbert in the Saturday NYT is an example. NYTimes.com Mr. Herbert opines that both the American government and its citizens need to quit being "stupid," Herbert's word so don't blame me, and come to a realization that both the government and its citizens need to stop spending money that is not there. That sort of sounds like a fiscal conservative, so I was temporarily impressed by Bob's conversion. After sounding the clarion call for fiscal restraint and fiscal responsibility, Herbert ends the column with a liberal flourish of recommendations requiring an acceleration of spending money- which is still not there- on programs that he favors. Bob, the money is not there!

It is curious though that the solution to the current economic crisis, which was caused by irresponsible borrowing, is to borrow tons and tons of more money, as the Government is doing now. The budget deficit for the current fiscal year will likely be in the trillion dollar neighborhood, give or take a couple of hundred billion, but hey who is counting billions anymore. The Fed had increased its balance sheet from about 900 million to 2.2 trillion dollars, not yet considered by the world as funny money, and has used its power to create money- that is not there- to bail out financial institutions who borrowed excessively and invested unwisely, primarily to benefit a few individuals who will keep the rewards of their stupidity while socializing the risks.  

Some pundits criticized Fannie and Freddie because the risk was socialized while the rewards were privatized. But that is exactly what is happening today in corporate America. What are the names of the few individuals who received hundreds of millions yearly for writing credit insurance using AIG's credit at the companies London unit, and who is now paying for their stupidity? Why not plaster their photos on the front page of every newspaper in the country everyday for about a month and on the national and local TV news during sweeps? 

NYTimes.com

AIG: STUPID IS JUST TOO GENEROUS A TERM TO DESCRIBE THEM

AIG: ONE SICK PUPPY- Even More Government Money on its Way?

And, isn't it interesting that the real estate bubble occurred just after the implosion of the Nasdaq and internet stock bubbles? I wonder how many citizens fully participated in both. It must be some kind of sport. I did not participate in either and I still have my money. Was anything at all learned from what happened in 2000 to 2002 before embarking on yet another bender when the prior one was still in a deep hangover? And, as some have said, the solution being pursued now is to give the drunk more booze, virtually all the booze that he craves, in an effort to cure him of his alcoholism.  It is almost like a sizable segment of our population is in need of serious adult supervision and at least ten years of counseling. Bill Gross seems to think that the American public has been singed by the current crisis and will restrict their buying habits for years to come, as my father's generation did who lived during the Great Depression. Maybe, he just might be right---- for the next six months. 

The latest story in the NYT series The Reckoning focuses on what went wrong at Washington Mutual. NYTimes.com

The common element in the failure of WaMu and the disintegration of other major financial firms is incompetence at the highest management levels. It is really scary to see the lack of good judgment, more appropriately anything that could be characterized fairly as judgment, at the center of so many financial firms. Was it really true that Chuck Prince did not know what a CDO was or Citigroup's 43 billion dollar exposure to the toxic waste until it was too late to do anything other than shout "uncle"? ("He didn't know a C.D.O.  from a grocery list " according to a former executive. NYTimes.com ) The quest for profits by whatever means possible resulted in risk taking that defied common sense. The standard set by the former CEO at WaMu was to "pump out loans while disregarding borrower's incomes and assets". As a result of incompetent leadership and the encouragement of a culture motivated with inappropriate and frequently self-defeating objectives or incentives, WaMu deserved to fail.  AIG and Citigroup deserve to fail.  

A few people at the top can destroy even the largest company, and shareholders will never be able to rely on the Board of Directors to do their job in any meaningful way. Yes, the Board can be counted on to fire the CEO, after paying him 88 million dollars between 2001 to 2007,  as the bank is burning to the ground, the kind of fire that can only be watched since the structure is too far gone when the fireman arrive to put it out. But how many institutions have been saved by usually inept Board of Directors before the damage, inflicted by a few individuals at the top, becomes irreparable? Bill Nygren apparently never wised up in time either. BusinessWeek 

In Michael Lewis' new book, which I am now reading, a story is recounted of someone buying a house for 1.157 million in 2005 with a $275 down payment, refinancing it with some funky mortgage that transfers all of the risk to the lender, and then two years later takes out a home equity loan for $491,000. The story is recounted in the NYT book review from Sunday. NYTimes.com

Now, if anyone is foolish enough to lend with those standards, loosey goosey is a too kind and exceedingly generous description, why exactly are they being bailed out? This would be comical if it was not so very typical in the bailout nation in need of a bailout.

My main question is now, as it has been for months, the same:  how long will the world finance America's fiscal irresponsibility, a borrow and spend, something for nothing mentality? Sometimes, I fear that Uncle Ben will hold a treasury bill auction  some Monday and no one will show up.  Isn't this debt binge just some kind of Ponzi scheme, just bigger than anything Bernie ever dreamed of doing?

When a treasury bill auction is held some Monday and no one shows up, it will then be too late, the house will already have burnt to the ground.   

Someday, during my lifetime, I would expect that the debt of the U.S. to be downgraded way below its current AAA status. Possibly at some time in the distant future, Americans will become concerned about a 500 billion dollar annual interest payment on the national debt, maybe when the interest payments expand to a trillion just because interest rates had to rise to attract reluctant foreigners to buy our paper.  That hope, not based on any existing observation of actual events, may seem optimistic for even a delusional pollyanna. I for one would not mistake something that is working here and now as a guarantee for what the future will hold. Gold and silver will remain a constant part of my asset allocation for the foreseeable future.    

The decision by Kuwait will cause me to avoid buying both the common stock and bonds of Dow Chemical. WSJ.com

I was already concerned about the 15.3 billion dollar price tag Dow was paying for Rohm & Haas and the cancellation of the 7.5 billion dollar payment by Kuwait makes Dow look even more dicey to me. I no longer have a position in Dow. Notable News 10 23 2008

I have worked hard this year to lose money.  My only consolation is that I have once again beaten the S & P 500, handily this year, with less volatility and risk. It looks like a down 15% year. The positives were my higher than normal cash allocation, my individual bond selections (including TCs and preferred stock issues),  all of my bond ETFs (some sold for a good profit like BND, BSV, & BWX, with the later one only bought back), my short term trading of stocks, and my forays into the double short ETFs during the first nine months (unfortunately none held after the Lehman bankruptcy). The main negatives were all of my stock and closed end funds with 50% losses being sort of the norm and the Loomis Sayles bond mutual funds. My worst hold for an individual security that I kept for the entire year was BAC.  I need to have some forced introspection on that one.

I still have both short and long term capital gains. In a year this bad, I see no reason to have a net in either of those categories. To offset most of what is left, I will make the best use that I can of the failed investment in one of my two Loomis Sayles' bond mutual funds, down almost 25% this year. I can at least reduce my tax bite by selling it now. In effect I will be netting their significant failures as managers of a bond portfolio in 2008 with my realized gains from individual bond selections this year.  But it was my failure in selecting this fund. 

Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes

Added 5/7/09: Anyone interested in this subject matter, floating rate equity preferred stocks, may want to register at the free site QuantumOnline that has links to prospectuses and other information regarding these securities, and those securities can be found in the section at that site under preferred stocks subject to the 15% max tax rate for qualified dividends. QuantumOnline Credit Ratings - QuantumOnline.com

ADDED 5/23/09. Updated Discussion on Floating Rate Equity Preferred securities: Advantages and Disadvantages of Equity Preferred Floating Rate Securities This post also contains basic information about the terms of each of the floaters.

Added 6/24/2009 My Gateway Post which contains links to my discussions of floating rate equity preferred stocks, synthetic floaters and CPI floaters is Floaters: Links in One Post

I mention briefly in this original post a Merrill Lynch floater. All of the Merrill floaters changed their symbols after the acquisition by Bank of America. I subsequently bought after this post BMLPRG, one of the Merrill floaters, shortly before Bank of America announced its conversion offer for its equity preferred issues, including those acquired as a result of its MER acquisition. I subsequently sold it. (Added 3/14/2010: I did subsequently add 100 shares of BMLPRH (2 50 share lots) after performing the following analysis based on the then prevailing prices: Item # 6 BMLPRH vs. BMLPRJ Bought 50 BMLPRH at $13.25 Bought 50 of the Floaters USBPRH & BMLPRH

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S L Green became the latest REIT to lower its common stock dividend, slashing it from $.785 to $.375. SL Green Trims Dividend - WSJ.com I have a very small investment in the common and a larger one in SLG's preferred stock. In the current climate, I view these common stock dividend cuts to be positive for the preferred stock shareholder in that more money is being kept by the REIT to service its debt and pay dividends on the preferred stock issues.

Andrew Bary's column in Barron's discusses the benefits of floating rate preferred stocks that I have discussed in these posts since I started to write them. Barrons.com I have owned or still own all of the ones mentioned in his column except for the Merrill Lynch adjustable rate preferred series L, MERPRL. I did not know about that one. I currently own AEB, which he does not mention, METPRA, BACPRE, and GSPRA. Bary asserts that these floaters have some of the characteristics of the treasury inflation protected securities in that they provide some protection against inflation. I made the same point in an earlier post. Inflation or Deflation: Bond Alternatives/

I also mentioned in the above linked posts that the floaters, at their currently depressed prices, provide protection in both inflation and deflation scenarios, because the guaranteed yields are now generous when bought at the current depressed prices. My buy of METPRA at 7, for example, provides a guaranteed yield of 14.2%, which is the deflation protection, and the 1% over LIBOR component of the equation provides some inflation protection. I have a more extensive discussion of the drawbacks of these securities than Bary since he merely mentions the opinion of Bill Gross and how the government's involvement in these large financial firms may serve to keep them alive. The drawbacks include a lack of a maturity date, most but not all of these securities are non-cumulative, the preference right of preferred shares is just above common which raises the spectre of a total loss in the event of a bankruptcy, and the prospectus needs to be read to determine the circumstances that allow dividends to be suspended which is important due to most of them being non-cumulative preferred stocks. Consequently, I under-weight them compared to the cumulative preferred stocks. I also place all preferred stocks with long term bonds in my asset allocation model due to their lack of maturity and the fact that their bond characteristics are far more dominant for an owner of these securities than any alleged equity feature. My view of them is not governed by the fact that the issuer treats them as equity.

The Merrill Lynch floater was offered last year and now trades at around $8.64. MER-PL: Summary for MER LYN DEP SHS SR 5 - Yahoo! Finance It offers dividends at the greater of 4% or 1/2% above 3 month LIBOR. Since Merrill is about to be acquired by Bank of America, I would put the credit risk of MERPRL in the same boat as BACPRE. I have a small position in BACPRE as discussed in my post dated 10/8/2008. 3 month Libor and Floating Rate Preferred Issues The guarantee and float provisions of BACPRE and MERPRL are the same. Since Merrill is about the be acquired by Bank of America, I do not see any reason to prefer one over the other except for a difference in price/purchase cost. I think this is the link to the Merrill security discussed by Bary in his column. Term Sheet

I owned for a brief time HBAPRF mentioned by Bary and sold it at a profit. It has only a 3.5% guarantee and a .75% float over LIBOR. It was also selling at a significantly higher price than the AEGON and MET LIFE floaters (METPRA has since rallied) that have a better guarantee at 4% with METPRA having a better float provision at 1% over three month LIBOR. So HBAPRF would be added back but only at a much lower price. HBA-PF: Summary for HSBC USA PFD F - Yahoo! Finance

(this is the U.S. sub for HSBC ) If I was going to buy this one again, I would review the financials. The prospectus link is Form 424(b)(5)

Bary does not give the symbol for the HSBC issue. He does give the symbol for the parent bank HSBC Holdings (HSC).

While I mix my discussions of these floaters with other topics, some of my more detailed discussions are contained in these earlier posts, along with a more detailed analysis of their drawbacks.

From 10/5/08:LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK

From 10/6/2008: LIBOR AND THE AEGON FLOATING RATE PREFERRED STOCK

Inflation or Deflation: Bond Alternatives/

METPRA Prospectus: METLIFE INC

AEB Prospectus www.sec.gov

I also think that it is important to keep in mind what happened to the Lehman floating rate preferred as I discussed in this post: PHOENIX SENIOR BOND: PFX /AIG /A RISK OF PREFERRED STOCKS (LEHPRG REMEMBERED)

When anyone mentions a bank trust preferred or a floating rate preferred, I always believe that it is important to understand the preference rights after a FDIC seizure of a bankKEYPRAOut of the Frying Pan Into the Fire My opinion is that a preferred stockholder of a bank would likely receive nothing after a FDIC seizure.

I sometimes bring these subjects up in emails to Bary and others journalists and never hear back. Of course, I generally torch journalists for their financial columns, as I did with the writer in Forbes who tried to discuss a few TCs in a column.Article in this Week's Forbes on Trust Certificates/Trust the Government?Continued Discussion on Trust Certificates & Forbes Article/DKR Possibly, if they had to manage their own money and actually had to put it on the line, they might look at the issues in more depth. Or, alternatively, if they eat their own cooking, then maybe they need to look at all the variables, alternatives and issues a lot harder.

I did read an interview with Bill Gross in the current Forbes' issue. He is basically saying that stocks will be lucky to return 6% per year. This view is based in part on consumers adjusting their buying habits after being singed in the current credit crisis. If I had to guess, and we are both guessing, I would say the return will be closer to 8% annually over the next decade or around a double in the market averages in 9 years rather than the 12 suggested by Gross. In a year, for most consumers, this current downturn will be a distant memory in the remote control nation. I was also interested in his purchases of International Lease Finance bonds, a subsidiary of AIG likely to be sold soon. I have bought three of them, with two maturing in 2009 in May and August, still selling at good discounts to par value. His reasons for buying are similar to mine, except I would add that International Lease is still profitable with a viable business even though it is of course heavily indebted. International Lease has separate filings at the SEC which I examined before buying these three short bonds. e10vq The problems with AIG caused International Lease to draw down its bank lines of credit and it was no longer able to float new debt issues to repay maturing ones, which has caused a liquidity crunch.

FCY: Odd lot limit order filled

I am about to leave HQ for the day, and just checked my order page. The 50 share buy of the Forest City senior bond was filled when the 9.95 bid was just hit.  In an honest appraisal of my own decisions to buy FCY and FCZ, I would have to characterize those decisions, taken together, to constitute proof beyond a reasonable doubt of going off my rocker, hopefully temporarily, but I would hasten to add that my exposure is insignificant for me in my defense.  Maybe it would be far the best to take a vacation around the world, see some sights, come back in about a year, before I start doing some really stupid things.  In any event, I will blame my Head Trader for any loss on these recent buys.  It is always good to have someone handy and convenient to blame for mistakes.  

Managing Risk in an IRA: KTN and KVW

For a retirement account, I try to manage risk in several ways.  The following is a description of one way that I have been managing risk for a small position in AON TCs contained in my regular IRA account (the large position is in a taxable account).  The following discussion assumes some familiarity with these two securities.  

TRUST CERTIFICATE AON BOND KTN

Both contain the same underlying junior debenture issued by AON, but KTN has a slightly higher coupon at 8.205% whereas KVW's coupon is 8%. Actual yields will vary based on the price for the security.  Due to occasional pricing discrepancies, one may be a better buy than the other at any given point in time and that may present an opportunity to manage risk.   In this IRA, for example, I sold 50 of KTN for over a $100 profit in mid September, at around 21, and then bought 50 of KVW at close to 16.  So in effect, I lowered my cost and increased my yield, while netting a small profit.  During one of the meltdowns, I added in this account 50 KTN at less than 14. GRTPRF: A WALK ON THE WILD SIDE/ KTN add

At that point, I have 50 KTN and 50 KVW which is an over-weight for this 1 bond in that account.  I mentioned in an earlier post that the intent was to sell KVW and hold onto KTN.  I sold the 50 KVW this morning at 17.55 for a small profit.  But now I have the higher yielding KTN bought at price  $2 lower than KVW.  So, once again, I lowered my cost basis, which reduces my risk, and increased my yield for the AON TC in this account.  Now, I have realized two profits for this bond in TC form in 2008, lowered the amount of money exposed to it, an increased my yield to the highest level yet with the last purchase. Both KVW and KTN go ex dividend tomorrow.  This is irrelevant for securities held in an IRA, since interest, short or long term capital gains, dividends, long term capital gains distributions are immaterial or irrelevant events for tax purposes of course.  For the regular IRA, as we all know, only a withdrawal is taxed and the withdrawal is taxed at ordinary income rates after 59 1/2 irrespective of the nature or category of income received while the money was still in the regular IRA, with many rules to keep track of these days, so I am just talking generally Publication 590 (2007), Individual Retirement Arrangements (IRAs).Retirement Plans FAQs regarding IRAs Time for an IRA Distribution? - 2007-2008 - Kiplinger.com The taxation of withdrawals in a regular IRA is one reason why I did several partial conversions to a Roth IRA this year when the valuations of certain securities in the regular IRA suffered substantial drops in price. Weekend News 10/ 25-26/ 2008 Sunny and Dark at the Same Time So it does not help to receive long term capital gains as opposed to interest and short term capital gains in these retirement accounts. Thus, the only considerations about buying and selling in the KTN/KVW swing trade are the brokerage commissions, lowering my cost basis on 50 shares, and increasing my yield.

For managing the AON TC position, I will keep the 50 KTN bought at less than 14 until (1) I become concerned about AON's credit or (2) I can lower my cost and increase my yield with the kind of trades that I have been doing.  I can look at the pricing of 4 Aon TCs do accomplish this task, KVW, KTN, DKK, KVF.  None are likely to present an opportunity to lower my cost and increase my yield over the existing position in KTN anytime soon.      

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  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 this post, and all others by me, 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.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

FCY: Forest City Enterprises Senior Bond (FCY)/FCZ

1. Forest City Enterprises Bond (FCY): The decision making process on whether to buy the senior note issued by Forest City Enterprises is producing a heated debate in my own head. The senior debt was just downgraded to B+ by S & P.

I am always cautious when a company eliminates a very small common stock dividend as a measure to enhance liquidity. The dividend was just eight cents.  To me, that is just plain negative. I looked at the 10-q again and noted 822.5 million in senior debt with 300 coming due in 2015 and 150 in 2017 (see p. 18, FORM 10-Q) More importantly for a senior debt holder is the amount of secured debt which is listed on p. 57. Of course, the senior debt would come after the secured debt in the event of a bankruptcy. Secured debt is listed at 5.979 billion. The expected maturity dates of this non-recourse mortgage debt is listed on p. 71.

 I could not find whether any of the properties owned were unencumbered by a mortgage which would be a relevant consideration for a senior debt holder looking at a boatload of secured, non-recourse mortgage debt in constant need of refinancing. This company has a lot of projects in development even though it has recently slowed down on new developments.

Personally, I believe that a prolonged downturn in commercial real estate, coupled with liquidity issues for a heavily indebted company, can topple even the best managed company. This is a very close call for me. After having a debate with myself and calling a vote, which was 4 to 3 in favor of a nibble only at a price below the current bid, I placed a limit order for 50 shares a few minutes ago. The dividend yield at $10 is 18.4%. The par value is $25 and the note matures on 2/1/2034. For ease of my next calculation, I am going to round that to 25 years to maturity. Amortizing the spread between a $10 cost and a $25 par value to arrive at an annual figure, I get 6% annually from the spread assuming payment at maturity or an early call. Still, it is barely worth even a nibble given the heightened level of risk involved in the current economy for commercial real estate and credit.

2. Ford Motor Credit bond (FCZ): I did suffer a moment of temporary insanity, maybe I need to take some meds, and I do own some Ford Motor Credit, with the position taken prior to today. Ideology and Facts: Coexistence Not Allowed/CIT/ F & FCZ/ I am almost sure that this may backfire on me but I did it anyway. FCZ has a 7.375% coupon, a 2031 maturity, a $25 par value, with interest paid quarterly. (prospectus: e424b2) When making this kind of investment, it is best to start with an assumption that you could easily lose money and to keep a tight stop loss on it. I will take my medicine at around 5. I hope that it is more than a 1 day wonder, up 42% so far today. I would have to say that anyone desiring to having me involuntarily committed could use this purchase as evidence. FCZ does go ex interest on Monday. I would hope that Ford would sell an interest in this finance subsidiary to a more stable party before considering a bankruptcy petition.

DISCLAIMER:

I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities 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 this post, and all others by me, 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. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.

Boatloads of High Yield/HIgh Risk Opportunities/VIX ARTICLE BARRONS/ Going to War Decisions: Conservative or Liberal vs. Competent or Incompetent?

Judging from the recent price action of the senior bond that I just bought issued by Phoenix Insurance, I was starting to think that the quarterly interest payment was going to be skipped with the company declaring bankruptcy on Christmas day. PHOENIX SENIOR BOND: PFX /AIG /A RISK OF PREFERRED STOCKS (LEHPRG REMEMBERED)  This did not happen and the WSJ dividend page shows the declaration of the regular interest payment, with an ex date of 12/29. Dividends - Markets Data Center - WSJ.com 

At my cost of 6.06, the yield is close to 31% annually plus the spread between cost and par value at maturity in 2032, which if paid in full would bring the total return yield to around 45% annually. All that needs to happen is for Phoenix to remain solvent. Two of the Aon TCs that I own, KVW and KTN, also go ex on Monday.    

I noted several more going ex on Monday that I currently own including Lexington Realty Preferred (LXPPRD), Winstream (WIN), First Industrial (FR) Sinclair Broadcasting (SBGI), ING Global Equity (IGD), Harvest Energy (HTE),  the Entergy Louisiana first mortgage bond (EHL) and several others.  

I try to keep track of my cash flow from dividends and interest as a predicate to tailor my common stock purchases when the new money arrives in my main account.  As I have mentioned, my entire cash flow in that account is now quickly being invested in common stocks.   

I mention these securities only to highlight a point.  The ones mentioned are all high yielding, particularly in the current low interest rate environment.   I have only discussed some of them like EHL, LXPRD,  and FR.  

For someone willing to take on risk, and capable of assessing the degree of risk after performing lengthy research, the last few months have been a rare opportunity.  The yields being offered on hundreds of securities are exceptionally high by historical standards and are enticing to me when treasury bills are near zero and the money market alternative is around two per cent.

After performing research, my final decision before buying is trying to adjust my total dollar commitment after reaching a judgment on the potential risk first and then the possible reward. (looking at the downside risk always comes first)  Normally, the prices paid for these securities by me recently, or over the past several weeks, would suggest an abnormally high degree of risk, with the market anticipating a highly probable and imminent cut or even an elimination of the dividend and even a bankruptcy filing within a year for some of the issues.  

A reduction in the dividend may certainly happen with some of the high yielding issues that I own.   Each one has to be considered separately with an attempt made to judge the range of possibilities.   It is all about possibilities and probabilities, rarely- if ever-does certainty enter the equation.   The first mortgage bond issued by Entergy on its assets in Louisiana does not have a double digit yield like the Lexington preferred stock but it is safer than that REIT preferred.  A yield of over 8% based on my purchase price for EHL still looks good to me now.

Winstream has a lower yield than Sinclair but is less likely to cut its dividend than Sinclair. Harvest Energy, a canadian energy trust, currently yields over 30%, but I expect a dividend cut sometime in the first half of 2009.

It would have more upside potential than Winstream if natural gas prices enter a new bull phase and refining margins improve (HTE owns a refinery in Canada).  Morningstar has one of the few reports available on Harvest Energy.   Except for EHL, a good part of the increase in yield is a direct result of the worst bear market in my lifetime which has also impacted severely at times TCs like KTN.   

Most investors understand that a rise in the yield is often caused just by a fall in the price, and prices for many securities have fallen 50% or more this year, to lows last seen in a decade or more. I noticed in the list of securities going ex dividend on Monday numerous examples of very rich dividends.  Some are from companies that I would not buy. Others are from issuers that I have been considering buying, sometimes for several months, but do not presently own. Something hangs me up on each one of them.  One of those is a senior bond from Forest City, FCY, where my attention has been focused on the ability of the company to pay the bond's interest FCE/A. The prospectus link: /www.sec.gov 

I have been unable to decide yet whether this senior bond yielding close to 20% is worth the risk. I am still working on it.  Some would say it is a better buy than the Phoenix bond which yields a lot more and sells at a larger discount to par value, but I am not so sure about that.  It is debatable and a good argument could sway me either way.  I know that Marty Whitman has liked Forest City for some time. TAVFX - Fund Top 25 holdings, Fund top twenty-five holdings - MSN Money But some of these real estate moguls scare me some with their large debt loads and grand ambitions. Those ambitions have a tendency to pop during any downturn, let alone a major one like now. The market in commercial real estate has already started a major down move. NYTimes.com  I think that some of the real estate moguls even count their debt as part of their net worth as if debt was an asset rather than a liability.  FCY goes ex on 1/13 and it is listed in the dividend declaration section. 

I do not expect to succeed with all of the purchases made in this high yield/high risk category but I do not remember a time being so richly compensated for taking the risk as I have been during the past few months. The senior bonds that I bought which were issued by higher tier investment grade companies were a gift, with many providing annualized returns over 15% for over twenty years (current yield + annualized amortization of the spread)  assuming continued solvency of course. The rare opportunity was so important that I have changed the way that I will manage this position in my asset allocation.  It occurred to me that the maturity dates and my life expectancy were very close to one another. Thus,  I want to keep them until maturity or the company takes them away in an early call, and I will now try to hedge the position with the double short on the long treasury which is something that I did not even consider doing until recently. It is best to remain flexible and fluid in my dynamic asset allocation method.  

A article by Michael Kahn in Barron's suggests ways to use the VIX as a short term trading vehicle.  Barrons.com

Part of this discussion has to do with the failure of the VIX to forecast the major decline after the Lehman failure.

Normally, as the article points, a rise to 35 could be used as a contrarian indicator and a buy signal.  


In my VIX model, I refer to this as signaling a buy of SSO in the SSO/SDS swing trade. This contrarian indicator failed when the VIX shot up to the 70s and 80s in October and December. This is why I modified my VIX model to liquidate the SSO part of the swing trade on a rise in the VIX to above 40. Personally, even though I developed this model, I have yet to buy SSO in a bear market at the peak of volatility which was previously 35 but no more.  

Kahn suggests that another model, using a 10 day moving average for the VIX, may be a better short term indicator.  I personally have no interest in trading short term using the VIX, other than the minor trades involving SDS/SSO in what I call a swing trade during an unstable VIX period. My main use of the VIX is as one indicator to use in making longer term asset allocation decisions.  In that model, a move back into stocks from cash is not predicated on the VIX moving to 35 but moving to below 20 and staying there for at least 3 months. Trading and Asset Allocation in Stable and Unstable VIX Pattern So the move to the 70s from 35 was not relevant for this longer term asset allocation model and all of this discussion engaged in by technicians is irrelevant to me on this subject, though I do read it.       

A prominent private Swiss bank, UBP,  steered 700 million of its clients' money to Madoff and is claiming it did all that was necessary. NYTimes.com  What exactly was this due diligence?  The bank claims it talked to Bernie and saw some order tickets. Does anyone want to send this bank some order tickets, make up some investment strategy that delivers 12% every year since the founding of the first stock exchange and ask them for say a mere 500 mil.   One interesting point to me at least is whether the clients of UBP can sue them in the United States, since UBP is based in Switzerland and their clients are probably Europeans. Another issue is what law would be applied to judge the bank's liability.  Bob Pisani wrote an article saying that 15% of the hedge funds are self-administered with no independent accounting, record keeping or back office. CNBC.com 

I am unable to understand why anyone would give money to an advisor that generates their own statements with no independent record keeping.  

I am still wondering why the news media calls someone favoring the invasion of Iraq a conservative. This would include virtually all media outlets.  It seems to me there is a carefully thought out position and then there is the W position. If I was going to put a label on it, it would be making a distinction between incompetent versus competent decision making. In competent decision making involving going to war, you would look at the intelligence with a jaundiced and skeptical eye given the magnitude and consequences of such a decision (not a consideration for Pearl Harbor but certainly for IRAQ).

For example, you would realize that some false information would originate from sources that wanted to entangle the U.S. in a war to remove Saddam for ulterior motives.

You would not dismiss the opinions of our leading experts on the uranium enrichment using aluminum tubes and go with Joe at the CIA for example.

You would personally review the Niger forged documents which would clearly indicate on their face their unreliability. You would personally assess why anyone was placing reliance on the ramblings of a former alcoholic taxi driver known as Curveball.  You would study the religious factions in Iraq in depth even if it meant postponing a vacation to Crawford or cutting 30 minutes out of your daily, several hour exercise routine.

You would give thoughtful consideration to the likelihood that every religious fanatic in the Muslim world would try to find their way into Iraq to cause trouble, the difficulty in securing the borders and the number of troops necessary to secure population centers and the borders after the invasion, and countless other details and  issues.

This would be neither a liberal or conservative approach but what I would simply just call the competent approach.  Different issues and points would be considered in connection with our involvement in a war like Vietnam or other conflicts.  In a way, there is a competent process both for selecting stocks and for making a decision to go to war.  

Then you have the approach actually undertaken by W & Cheney or Cheney and W which is my preferred way to reference the duo, and their True Believers, (and LBJ for Vietnam) that pretty much discards and disregards every single consideration of the competent approach and instead substitutes forming an opinion first and then finding whatever supports that opinion, no matter how unreliable it might be, or the support could even be nothing more than another opinion from a True Believer ideologue that justifies the pre-ordained opinion which is the preferable approach for the incompetent.

How does anyone identify W's approach as emblematic of conservatism or liberalism or any ism other than an evangelical approach to complicated life and death issues.

To me, when someone mentions the invasion of Iraq and the subsequent occupation, the word conservative does not pop into my mind as defining those decisions.  Incompetent zealotry similar to what I would expect from any ideologue is the apropos phrase that comes to mind.  It is just a different kind of mush than you hear from some "liberal" opponents but it is still mush.

 I can always count on Charles Gibson to give a puff interview with a Cheney or a Bush, and his recent interview with W certainly fits that description.  I really do miss Tim Russert.

One of the problems is the absence of real journalism and I would not consider Gibson a serious journalist. He just let W blame others about giving him bad intelligence, without challenging questions, as if W was an innocent bystander in the decision to go to war.

Bush is even suggesting now that he might have altered his decision if George Tenet had just given him the straight dope (which is directly contrary to what both he and Cheney said earlier FOXNews.com - Transcript: Bush Talks With Brit - Brit Hume | Special ReportCheney: Iraq war right, WMD or not - Meet the Press, online at MSNBC- msnbc.com ).

Both Cheney and Bush clearly said in the above  linked transcripts that they would have invaded IRAQ knowing that there was no WMD. Yes, there is no doubt in my mind that they were then telling the truth about their decision making process.  WMDs did not matter.

There is no doubt in my mind that W and Cheney wanted to invade Iraq to remove Saddam, who was a destabilizing force in the region, and that is all that mattered to them. The stories told to the public to generate war fever were just that-stories. And it is certainly easy to generate a war fever in this country.  If they wanted to justify the invasion to the American public in an honest way, they could have given their true reasons, which may have included their suspicions about WMD with an honest appraisal of the evidence or lack thereof which they never did, as well as the long term national security issues relating to a continuation of Saddam's regime or one of his sons, and then lay out the potential problems and costs in an honest and complete manner (as opposed to underestimating the potential costs and problems and getting rid of a general for example who said more troops were needed and it would cost more than the public was being told).

This would be a proper debate to have in a Democracy about the decision to go to war. If this was done, and the representatives elected to vote for the war, then so be it.  An honest debate is not one that this nation is ever likely to have in situations similar to Vietnam or Iraq, because honesty and facts are not a necessary ingredients to generating war fever in the majority. Of course, the press including the NYT failed miserably in their mission to expose the true state of affairs. 

Since I view myself as a conservative, I do not understand why others call W's approach to war decisions the conservative one. It is more of a distinction between competent and incompetent, intelligent and stupid, informed and uninformed, ideological and non-ideological, and a lot of other terms that I could mention before I would even think of conservative and liberal.  But those who wish to call themselves conservative, aided by all media outlets who generously afford them that description, will continue saying such and such person is a conservative because he supported W's decisions relating to Iraq. 

I read Thomas Sowell' column today in the Tennessean where he claimed a reader of the "mainstream" media would be unlikely to find out that Governor Rod Blagojevich was a Democrat while they are quick to report that Senator Stevens of Alaska, recently convicted of corruption, is a Republican. A copy of the article can be found in the National Review.  Obama Teen Beat by Thomas Sowell on National Review Online

 This is typical for Mr. Sowell who will simply warp or create information to fit his worldview.  He is part of the mainstream right ring media that demonstrate their bias with every breath they take and with virtually every word written or uttered by them.  

It is difficult to find an article in what Mr. Sowell calls the mainstream media that does not mention Blagojevich's party affiliation and I do not know anyone who is ignorant of it. I tried for about a half an hour to find one and came up empty. I suppose the Washington Post, Los Angeles Times, and NYT are part of his description of mainstream media.  This is a small example of articles that I saw in the Mainstream media that identified the governor's party affiliation.

Illinois Governor Charged in Scheme to Sell Obama’s Seat - NYTimes.com

Obama Tries to Stay Out of Blagojevich Fray - washingtonpost.com

Illinois gov. arrested in scandal - Los Angeles Times

ROD BLAGOJEVICH: Gov. Rod Blagojevich arrested, charged, released -- chicagotribune.com

Feds: Governor tried to sell Obama's seat - Politics- msnbc.com

Illinois Gov. arrested on corruption charges - Boston.com

I did find some articles that did not mention Stevens was a Republican however.

So why would Sowell make such a comment. 

Inventing and assigning a bias to others is part of his DNA, as well as the DNA of other chip on the shoulder, self-described and appointed, "conservative intellectuals". Sowell also blames Ivy League educated nitwits  for mismanaging the Vietnam War. I already know about the best and brightest from reading a book by a real intellectual-David Haberstam-several years ago.  The Best and the Brightest - Wikipedia, the free encyclopediaDavid Halberstam - Wikipedia

For Sowell, it is not a question about the wisdom of American involvement in Vietnam in the first place, the costs in human lives and in dollars, the relationship of the conflict to the furtherance of the nation's security interests (does it matter now that Vietnam is a communist country, or is it even communist now?), or any other sensible, rational and reasonable criteria.

If you read Haberstam's book, it was a failure to consider all of the sensible criteria that led to the Ivy League whiz kids digging a deeper hole for the country in Vietnam when advising Kennedy and then Johnson.

Instead, for Sowell,  the mismanagement is simply not escalating an ill-advised conflict further and turning it into a deeper conflagration.  His real point is similar to one made earlier by Bush,  that the United States needed to stay longer than a decade in Vietnam, fighting an endless war in a jungle to support a corrupt government in South Vietnam, and to sacrifice another 50000 young men or more until victory was achieved. And to what end I would ask? Myths of '68 by Thomas Sowell on National Review Online

It is sad that Mr. Sowell is considered one of the leading lights of conservative thought.  But Sowell, Coulter, and Limbaugh are the brains of the new conservative movement. 

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  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 this post, and all others by me, 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.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Madoff: Lawsuits starting to fly against advisors/Buy of Sunopta: Highly Speculative

I would like to be a bug on the wall when the deposition of the principals at Fairfield Greenwich are taken and the examination turns to their compensation for steering the gullible rich to Madoff and to their alleged due diligence. Suits have already been filed Bloomberg.com: Worldwide  Do you think that they will just fork over most of the outrageous fees that they charged their investors for being financial whizzes in selecting Bernie or will they just delay and delay until a settlement is reached leaving them with most of the money collected from their investors over the years?  Gabriel Capital, a hedge fund run by Ezra Merkel, has also been sued for alleged breaches of fiduciary dutyBloomberg.com: Worldwide

I returned today to revisit a small cap that worked well for me last year with over a $800 profit on a small position with the last sale in November 2007 at close to 15.  I allowed my 18 year old nephew to time the sale and gave him $300 for being right about it (he called me at night, told me to sell, and I followed his instructions the next day and he just about hit the high with his call). This is the same one who was asked to leave an Indian Casino a few days ago for allegedly counting cards successfully at blackjack (not paying any attention to the wisdom and advice of a sage and exceedingly generous uncle) and who may soon be attending Harvard, Columbia or some other school that would have shredded my application after giving it a 1/2 second glance. 

The stock is Sunopta (STKL). I just bought a 100 shares at $1.65 of this now troubled company, which is speculative, but to an old gambler I would just say to all that I am playing with the house's money. STKL: Summary for SunOpta, Inc I would not touch it now without that consideration already in place. One of the negatives is the class action suits filed against the company after some major problems turned up at their berry operations. Who knows how that will turn out?  So, given that uncertainty, I would not risk much now. It does have recovery potential in the event the lawsuits are resolved without too much damage to the existing shareholders. I will give it close to 12 months before making a decision to sell my shares.  If things start to look better late next year, I will hold for a long term capital gain.  S & P has a report on it but there is little other brokerage coverage. Earnings are estimated at .28 for 2009 and the price to sales is currently hovering at around .10. Analyst Estimates for SunOpta, Inc Its main operation is its food group mostly in organic foods. Sunopta also owns 66.6% of Opta Minerals which is probably sensitive to the economic downturn since it provides materials for use in the steel and roofing industries. A review of some of the recent 10-Q's at the SEC would reveal some of its problems and a more complete description of its operations than I am giving here for such an immaterial holding for me. 

Since I was already familiar with this company, and it was being monitored before its purchase today, I spent only about an hour reviewing the more recent information on it. Otherwise, I would have devoted at least 3 hours to it.   That proves just how bored I am now and why I am writing this blog.  My VIX asset allocation model has severely restricted my normal routines in stock buying to the point that I am not allowed to do much of anything anymore. 

SEE DISCLAIMER  

Chris Cox: Medal of Freedom?/Massive Dividends for Proshares ETFs/TBT add

Some of the dividends recently declared by Proshares short ETFs surprised me by the amounts. A dividend of $30.5363 was declared for the ultrashort Russell 2000 (SJH), over $50 for the Ultrashort Russell Midcap (SJL), and several more above $30, with numerous ones at $10 and above. ProShares ETFs – Distributions (Hubpage) – – OverviewDividends - Markets Data Center - WSJ.com  Mostly, the dividends are short term capital gains. Personally, I would consider this to be a negative for using this product.  TBT, the only one that I am considering now, did not declare anything.  I went ahead and started my position as a hedge against my over-weighted position in long corporate bonds. This will not look so hot if the long treasury continues to rally with the yield falling to 1% as some predict.  The reasons for buying TBT are discussed in prior posts. Rally In Long Term Investment Grade Corporates/TBT/BTE/AVY/REITS My maximum hedge would consist of 200 shares which will need to be managed as long as I maintain an overweight position in long corporate bonds.  

It would be reasonable to expect jobless claims, which reached a 26 year high in the latest week, to continue setting records into the first quarter of 2009.  Yahoo! Finance

The downturn now has its own momentum, with lost jobs creating more foreclosures. Some of the stimulus plan will apparently include middle class tax cuts which will help.  But what will restore confidence?  Most of the jobs created by spending money for infrastructure projects might take a year or so to appear, just due to the lag time inherent in putting these large projects out to bid and performing necessary engineering and planning work.    On the good news side, for those who qualify for a mortgage, the 30 year rate has now fallen to a 37 year low, with the average currently at 5.14% MarketWatch

The best thing about this year is that it will soon end.  

Chris Cox takes pride in his accomplishments as SEC Chairman. Yahoo! Finance  Maybe W will give him a Medal of Freedom like he did George Tenet for his fine job as CIA director.msnbc.com

Cox did his job almost as well as Brownie.  I am giving Cox the benefit of the doubt by saying he almost did his job as well as Brownie.  Some of his accomplishments are summarized in this article Seeking Alpha

 Then you have the elimination of the uptick rule that allowed hedge funds to engage in market manipulation. CNBC.com

Other forms of market manipulation allowed by Cox include naked short selling, which is another practice that harms the market and destroys the confidence of individual investors.CNBC.com Possibly, the victims of scams, with Madoff just being the latest, will not feel so charitable to giving Cox kudos for ignoring warnings.   If Tenet deserves the Medal of Freedom, then so does Brownie and Cox, so just give it to them W before you go back to the ranch. 

Some of the REIT preferred issues that I have recently bought will go ex-dividend soon, including BDNPRC FRIDAY and GRTPRF in a a couple of days. I suspect that many holders of these securities are a very nervous lot and will start worrying about the next dividend payment as soon as the current one goes ex dividend.  So, I would not be surprised by a sell-off in these issues that goes beyond the price adjustment for the dividend. 

I jettisoned most of my small caps last year.  I generally monitor about 200 small caps and 100 mid caps for possible inclusion into my portfolio.  Many of the mid caps are now small caps and a large number of small caps would be more appropriately labeled as micro caps.  I am going to start buying small companies whose success or failure have minimal correlation to the economy and I may nibble on a few others sold last year for nice profits which have since been decimated.

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  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 this post, and all others by me, 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.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.