MSFT CZNC/Sold Aegon Hybrid AEH at $23.09 Bought at $4.63/Sold CEF JDD at 11.28 & Bought 50 GJT at 18.15-Roth IRA

In the Spring, I started to significantly pare my stock allocation based on evidence of a slowing U.S. economy and accelerating inflation problems in emerging markets. I am now starting to plan for a possible U.S. default caused by the irresponsible zealots and reactionaries in the U.S. House of Representatives.

While the market currently assigns no possibility to a U.S. government default, I believe that this market consensus underestimates the potential of a catastrophic outcome. I do not believe that the odds are as high as 50% that the deadline will pass without an increase in the budget limit, as suggested by one analyst in a front page story in the USATODAY.com yesterday. I would simply view the odds as significantly higher than the consensus among investors which is zero based on recent market action.

Since I have already significantly reduced my stock allocation, I started yesterday to pare stocks a tad more by selling a stock ETF, raising the cash allocation by 6 thousand with just that sale, based on my evaluation of possible scenarios, my overall cautious and conservative nature, a strong belief in better safe than sorry, and LB's constant desire to reap trading gains. "Tunnel Vision Nerd Machine", the RB had to add to that last statement about the Lame Brain. I may continue to sell one stock CEF or ETF every day counting down to August 2nd.  Except for possible Lottery Ticket adds, I will not be purchasing any stock for any reason until there is a resolution.

This is a link to the bipartisan debt limit proposal that has been rejected by many House GOP zealots already: The Washington Post An example of a negative response from one of the extremists is  Jim Jordon's opinion published in the USATODAY.com yesterday.

David Gergen in his column at CNN believes that a default is likely to be in our future.  I would not be that pessimistic.

The market reacted favorably yesterday to Europe's latest effort to deal with its sovereign debt problems.  MarketWatch   Reuters   Washington Post

A GOP puppet master, Rush Limbaugh, said on 7/20/11 that all of this talk about default was just Ivy League pranks the elite were playing on the people

All of this attention on the debt limit is taking investor's attention away from a continuation of deteriorating fundamentals, which would simply be made far worse, without question, by a default.  The CEO for Pepsico (PEP) said yesterday on the conference call that the modest pickup in consumer spending "had reversed in the past several months". Seeking Alpha Transcrip Conference Call: Opening Remarks of CEO Indra Nooyi Whirlpool's CEO told investors yesterday that demand for appliances is back to 2009 recession lows, as the company expects a 1% to 2% decline in 2011 industry shipments. (SEC Filed Press Release and Introductory Comments by CEO Jeff Fittig Earnings Call Transcript - Seeking Alpha)  Ingersoll Rand (IR) slide yesterday after reporting a lower than expected profit (Press Release), as did Safeway (SWY).  I do not own any of those stocks currently.  Some took solace in a 3.2 reading in the Philadelphia Fed's manufacturing survey, but I was not one of them.

Microsoft (own) reported robust earnings after the close yesterday. The company reported 69 cents per share on $17.37 billion in revenues (Microsoft), beating the consensus estimate of 57 to 59 cents per share, depending on the service providing the consensus estimate. I am reinvesting the dividend.

The shares fell in after hours trading, probably due to the second straight quarterly revenue decline in the division that includes Windows.  That division suffered a 1% revenue drop.  MSFT claimed that revenue would have been in line with the 2% to 4% in PC market growth, excluding the impact of last year's launch of Windows 7 and revenue deferral. A discussion of this report can be found at MarketWatch.

I decided to re-purchase the shares earlier this year, pursuant to my Large Cap Valuation Strategy, based in part on valuation and my belief that investors had become too pessimistic about the MSFT's prospects.  Item # 1 Added 30 MSFT at 24.15 (May 2011-Also Shows Snapshot of 2009 Trades); RB BOUGHT 100 MSFT at 27.08 (February 2011); ADDED 50 MSFT at 25.81 (March 2011); Added 50 MSFT at $25.55 (May 2011).  I have not sold any of those shares. (see also discussion in Item # 4  MSFT (7/5/2011 Post).

1. Earnings from Companies Bought in LOTTERY TICKET Stock Strategy: In my LT stock strategy, I own a number of stocks where the initial purchase amount is limited to no more than $300 plus any realized gains and distributions from prior purchases. The Head Trader for this strategy is Right Brain, our RB, and the cap is placed on those purchases given the identity of the HT along with the risk of the investments. I will generally not discuss earnings of companies whose stock is owned by part of this strategy, except in very brief terms. It does not matter what happens, and I am willing to hold the position for a long time.  

Keycorp (KEY) reported earnings of 26 cents per share for the 2nd quarter, beating expectations by 6 cents. 

Virginia Commerce (VCBI) reported 2nd quarter earnings of 24 cents per share, up from 15 cents. This beat the estimate by 10 cents.  

Umpqua Holdings (UMPQ) reported second quarter net income of 17.7 million or 15 cents per share, up from 3 cents in the year ago quarter. This was a 3 cent beat.  

Huntington Bancshares (HBAN) reported earnings of 16 cents, and raised its quarterly dividend to 4 cents from 1 cent. This beat the consensus estimate by 1 cent.  I have a $140 realized gain from a prior HBAN transaction so I can add that number to the $300 maximum.

Pacific Continental (PCBK) reported net income of $2.157 million or 12 cents per share. The consensus estimate was for 10 cents. 

2. SOLD Aegon Hybrid AEH at $23.09 Bought at $4.63 During the Dark Period Last Wednesday (see Disclaimer): The yield on this security fell below 7% at my sales price. I did not see any compelling reason for continuing to risk the unrealized gain. I have bought and sold this security in other accounts. 

I did very well trading Aegon Hybrid securities during the Near Depression, as their prices prove to be extremely volatile. (see Aegon Hybrids: Gateway Post) I bought the AEH shares in the regular IRA at $4.63 (March 2009). So that is a home run before taking into account the dividends.  Reading that post from March, I see that I was concerned about this security going even lower in price. It actually did fall some shortly after my purchase, closing at $2.97 on 3/9/11.  AEH Historical Prices Those were the days. RB just said that it wanted to buy a million at $2.97 but was squelched by the LB. 

This leaves me with 200 shares of AEB as my sole Aegon hybrid, with those shares bought during the Dark Period between $4 and $8. Snapshots of the AEB positions, held in two accounts, can be found at Item # 1, AEG and at Item # 1  Bought 50 MSPRA @ 19.57, 50 PYT at 18.06, & 50 GYB at 18.63 in the Roth IRA.  

I am also down to only 50 shares of INZ, bought at a total cost of $7.98, as my sole ING hybrid. That security is owned in the regular IRA. The purchase was made on 2/18/2009.  A snapshot of that trade can be found in Item # 9,  Bought 50 INZ @ 23 in the Roth IRA (January 2011). ING HYBRIDS: Links in one Post Neither ING nor Aegon have missed a dividend payment on their respective hybrids. Both did eliminate their common stock dividends which is always an important fact for the owners of the hybrids. 

For reasons that would not be comprehensible to any informed investor, Fidelity has now added AEB to its no trade list. That decision can not be justified, and is totally and completely idiotic, beyond belief actually. I did not believe it until I confirmed it by attempting to place an order (on Fidelity's growing list of trade prohibitions, see   Fidelity Prohibits Purchase of HBAPRF (allows purchase of functionally equivalent HBAPRD and HBAPRG); Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP; Fidelity Prohibits New Purchases of SIPs).

This is the message waiting for Fidelity customers who attempt to buy AEB:

3. Bought 50 GJT at 18.15 in the ROTH IRA on Wednesday (see Disclaimer): I previously traded this security in 2009 and made $472.45 on two 50 share positions:

GJT Roth IRA 2009 Realized Gain $472.45

Before I understood that there were complicated tax issues involved with this type of security, I had bought 100 GJT in a taxable account and flipped it for a quick profit, which takes my realized gain to over $550 for this security.  I believe that my initial purchase of GJT was in April 2009. BOUGHT VEU AND GJT at $8.3  Trimmed GJT at $13 (June 2009); Sold 50 GJT-Some Details about Managing My Two IRA Accounts (December 2009)

The impossible to understand tax issue is summarized at pages S-37 to S-40, which made the LB's eyes roll back. As a result, I will only own the synthetics in an IRA now. 

I know that some readers roll their eyeballs when I start to discuss Synthetic Floaters, a type of Exchange Traded Bond. They are among the more difficult securities to understand so I will try to simplify the discussion some.  

First, all of the exchange traded synthetic floaters are in trust certificate legal form. The investor does not buy the bond directly.  Instead a certificate is purchased representing a beneficial interest in a bond owned by a Grantor Trust. That trust is formed by a brokerage company, who buys the bonds and then deposits them into the trust.  The trust is administered by an independent trustee.  For GJT, that trustee is the Bank of New York. 

Second, for synthetic floaters, the bonds owned by the trust are fixed coupon bonds.  The trustee will collect the interest payments made by the issuer of the bond. For GJT, that bond is a senior bond issued by Allstate that matures on 4/1/2036 (Prospectus: www.sec.gov) The Allstate bond has a 5.95% fixed coupon and is rated A3 by Moody's. FINRA The owner of GJT is exposed to the credit risk of Allstate.

Third, the owner of GJT is unlikely to ever receive the fixed coupon amount of that Allstate bond. Instead, when this security was created, the trustee entered into a swap agreement with Wachovia, now part of Wells Fargo.  For as long as that agreement remains in force, the trustee will "swap" the interest received from Allstate for an amount due the owners of GJT. That amount is .8% above the 3 month treasury bill rate based on a $25 par value, paid monthly. There is no minimum coupon, which is the case with several other synthetic floaters, but there is a maximum coupon of 8%. 

The problem with having no minimum is shown by what has happened in the past three years. The T bill rate is now near zero. As a result, this security is paying a .8% spread over nothing. The bright side is that the security was bought at a discount to its $25 par value and eventually the FED will end its Jihad against savers. 

The maximum yield at a total cost would be hit when the 3 month T Bill rate exceeds 7.2% during the relevant computation period. Based on a total cost of $18.15, the 8% cap, and the $25 par value, the yield would be around 11% at that maximum coupon level. In addition, assuming Allstate survives to pay off the bond at maturity, I would receive a profit representing the difference between my cost and the $25 par value. I doubt that I would have to hold this security that long to receive something close to par value. When the T Bill rate returns to normal levels or higher, investors will likely bid up this security, provided the underlying Allstate bond is still rated high. This is not going to occur anytime soon, for sure, and may take several years. Since I will never need the funds in the ROTH IRA, I can wait.  The security was trading at between $22 to $25 in 2006, when the 3 month treasury bills were auctioned mostly in the 4% to 5% range. 

Historical treasury rates can be downloaded from the Federal Reserve: FRB: H.15 Release--Selected Interest Rates--Historical Data

4. Sold 100 JDD at 11.28 Last Wednesday-Roth IRA (see Disclaimer): This one was apparently not included in my last CEF table which was an oversight. Stocks & Politics: CEF TABLE (July 2011 Post) " Yet more proof that the OG is becoming senile, the Old Goat barely knows what he owns", the LB added with evident satisfaction.  

I had traded this CEF a few times, and owned only 100 shares in the ROTH.  Bought 300 JDD at $10.95 (September 2010); Sold 300 JDD at 11.44 (December 2010); Bought 100 JDD in Roth at 8.4 (August 2009);/Added to CEF JDD at $9.45 (October 2009); Sold 70 of 170 of JDD (February 2010). 

I had been taking the quarterly dividends in cash.  Given the high dividend, I realized a good total return on the shares bought at a total cost of $8.48 and $9.56:

100 JDD Roth IRA-Shares Purchased in 2009

The first position in that snapshot was part of a 130 share position, with the other shares sold some time ago. 

This is a link to the sponsor's web page: JDD - Nuveen Diversified Dividend and Income Fund  The quarterly distributions over the past two years certainly added to the total return: JDD Historical Distributions

5. Citizens & Northern (CZNC)(own: Regional Bank Stocks' basket strategy):   CZNC reported net income for the 2nd quarter of $5.697 million or 47 cents per share, up from 45 cents per share in the 2nd quarter of 2010.  As of 6/31/2011, the tangible equity to tangible assets ratio was 10.9%; the total risk-based capital ratio was 19.09%; NPAs to total assets was .75%; and the tangible book value was at $11.64 per share.   SEC Filing  The last quarterly dividend was 14 cents per share. The shares are currently trading at over $16. Bought 50 CZNC at 11.77 Added 50 CZNC at 10.46

100 Shares of CZNC: Average total Cost Per Share =$11.27

Citizens & Northern closed at $17.05 in trading yesterday. 

GOP's "Cap Cut and Balance" Plan/Intel/Sold 300 MMT at 6.89/Added 50 FNFG at 12.8/Added 50 MFA at 7.78 in Roth IRA/Bought 50 GSPRA at 20.86

This is a link to an interview with Rob Arnott, well worth the time to read: Arnott

As noted in the column written by Anthony Mirhaydari at MSN Money, the day of reckoning for the U.S. will be on August 15th when 1.1 trillion dollars comes due.  A default would trigger far reaching and catastrophic effects, far worse than anything that happened after Lehman's failure.

The WSJ summarized the spending cuts proposed by the GOP's "cap, cut and balance" plan in an article last Monday. Non-security discretionary spending would have to be cut 33% by 2021; Medicaid would have to be cut by 1.4 trillion over the next decade and cut 50% by 2030; and Medicare beneficiaries would have to pay substantially more in premiums. As noted in prior posts, the CBO and the Kaiser Foundation have estimated that a typical 65 year old person, purchasing health insurance from a private company as provided in the GOP plan, would be paying about twice as much as under traditional Medicare. (kff.org/medicare/.pdf;  Ryan's radical plans for Medicare - CBS News;  www.cbo.gov Ryan_Letter.pdf;  Fortune Magazine)

The spending cuts envisioned by this GOP plan are called "draconian" by its supporters and opponents.   POLITICO.com  Draconian to the poor and the middle class, not to the benefactors of the GOP.  The GOP members in the House have shown no inclination of backing down as noted by POLITICO.

This plan would also make it virtually impossible to increase taxes by requiring a super majority to approve any tax increase. Since this would be in an amendment to the Constitution, the GOP's benefactors would not have to be concerned about paying more in tax, unless their bought and paid for representatives are reduced to a fringe party.

The GOP's budget plan passed the House on Tuesday. This is how the representatives voted:  Final Vote Results for Roll Call 606 or  NYT

As previously mentioned, the Ryan budget plan gives the wealthy additional tax breaks, bringing their top marginal rate and that of corporations, down to 25%.  Although the middle class is under no treat of a tax increase, even from liberal Democrats, the middle class base of the GOP is, so far, fully behind this effort to tap into retirement savings in order to support even more tax breaks for the "Job Creators". Austerity will be imposed only on those in the middle or the bottom of the economic pile, the wealth gap between the top 1% and everyone else will inevitably continue to expand which has to be the desired objective since that would be the natural consequence.

When asked what programs would be slashed, Senator Orin Hatch (R-UTah) responded that he will identify the cuts after the balance budget amendment passes. Bloomberg Other republicans refuse to identify the cuts as noted in the forgoing linked article published by Bloomberg. They know what they intend to cut now but intend to keep it a secret to themselves until after their balanced budget Constitutional Amendment passes that will require draconian cuts in non-defense spending. In order for them to disclose their intended cuts in popular programs, the voter will first need to know the secret password and handshake. That is really slick considering the number of programs that would have to be slashed to meet the artificial limit imposed by the Amendment.

The House Republicans are very clear in their desire that the wealthy deserve more tax cuts however, and those citizens will not be sharing in any austerity program. Share the burden includes everyone below the top 10%.  Senator Hatch is up for reelection in 2012, and the Tea Party crowd wants to retire him in favor of a zealot which has already happened to the former Utah Republican Senator Bob Bennett.

Eric Cantor calls the "cut, cap and Balance" plan a common sense approach,  NYT, which it very well may be for  old white men who are filthy rich. I did not mean to say old. I meant middle aged white men over 55.  The approach is also satisfying to those middle class, angry white men and women who are being thrown overboard by the GOP, who are unlikely to protest, being conditioned to ignore accurate information as liberal propaganda.

Another reactionary zealot Jim Jordan (R-OHIO), who calls himself a conservative and heads the Republican Study Committee, referred to the plan approved by the House as "the only compromise".  He wanted to cut 9.5 billion, which was more than the plan actually adopted by less radical GOP members on Tuesday. That is what Jordan and his fringe call compromise.  Jordan proposed a budget that appealed to his extreme right wing colleagues that required 9.5 trillion in cuts over the next decade, and that proposal received over 100 GOP votes. Jordan and his Republican Study Committee have already released a statement opposing the bipartisan plan originating in the Senate:  Republican Study Committee (RSC) That is to be expected.

Paul Ryan, another reactionary zealot, also released a statement opposing a balanced approach toward deficit reduction.  budget.house.gov Gang Of Six.pdf  Ezra Klein pointed out Ryan's hypocrisy on this issue in his column in the The Washington Post.

It looks to me like the only bipartisan proposal to emerge, which relies some on raising revenues by cutting tax loopholes, will not be acceptable to the GOP representatives in the House and is DOA. It is still far from clear to me that anything can be done to satisfy the fanatics before August 2nd.  I do not believe default is off the table. The market is still acting as if a deal will be struck.  I do not believe that is entirely rational when you take a hard look at the flagrant irresponsibility and recklessness of the House GOP members.

Hopefully, before the next election, independents will focus more on what the new GOP representatives are trying to do to both the poor and the middle class, while of course enriching their benefactors. At the moment, few are even aware of the GOP's effort to bankrupt the middle class with their Medicare proposal while proposing more tax cuts for the wealthy. Item # 1 GOP's Plan To Bankrupt the Middle Class That proposal has receive scant attention in the mainstream media and most voters are unaware of it.

If that is what America wants, then so be it. If the voters in about 70 to 100 congressional districts were paying attention now, I suspect that there would be a massive swing in the next election away from reactionary radicalism toward a more centrist, mainstream House of Representatives. For those who are not TBs, the first sign of enlightenment will be a recognition that the current crop of GOP House members are reactionaries,  way outside the mainstream of centrist American principles. As this fight goes on, and more people pay attention to what is happening, I suspect some opinions will change about giving power to reckless zealots who wish to turn back the clock in this country to the balmy days of the 19th century.  In my congressional district, there would be majority support for ending programs like food stamps, Head Start, school lunches for under privileged children, and Medicaid, but I believe that is not the case in 70+ districts that elected an extremist in the last election.

It is interesting that Senator Hatch (R-UT) has had to apologize to the Tea Party crowed for his TARP vote, groveling for their forgiveness. The TBs are furious that the U.S. government successfully intervened to avert a financial collapse and another Great Depression, even though the treasury may come close to breaking even on that successful program.  The Economist

Senator Mike Lee (R-UT) is in favor of phasing out social security, repealing the 16th Amendment permitting federal income taxes, and for abolishing the education department. NYT Along with fellow reactionary Senator Ron Paul (R-KY), Lee recently sponsored legislation to gradually increase the retirement age for social security to 70 by 2030. MSNBC It is not surprising that he clerked for Supreme Court Justice Alito, one of the newer reactionaries on the Supreme Court. I suspect that their motive is to end social security down the road.  

This is a link to the increasingly common fraud involving the short sale of homes whose value is less than the outstanding mortgage balance. Short sale fraud plagues the housing market - Jul. 14, 2011 The victim of the fraud is the bank and the usual perpetrator would be a real estate agent.

1. Intel (owned): J P Morgan cut his revenue and EPS estimates for 2011, based at least in part on lower than normal 3rd quarter notebooks sales. The new estimate is for a 2011 E.P.S. of $2.30 from $2.35. A snapshot of my Intel purchases can be found at Snapshot of Intel Purchases with Cash Flow.

2. Renasant (RNST-own)(Regional Bank Stocks'basket strategy): Renasant reported net income of $5.757 million or  23 cents per share for the 2nd quarter, up from 18 cents in the 2nd quarter of 2010. The consensus analyst estimate, which includes 10 analysts, was for 22 cents per share. RNST Analyst Estimates

As of 6/30/2011, the tangible common equity ratio was at 7.11%; the tier 1 leverage capital ratio was 9.1%; the Tier 1 risk-based capital ratio was at 13.58%; the total capital ratio was 14.83%; the net interest margin was 3.76%; the efficiency ratio was okay at 68.59%; the allowance for loan losses as a percentage of non-performing loans (NPLs) was at 91.52%; and the NPLs to total loans was at 2.38% based on assets not subject to FDIC loss sharing agreements. This bank has expanded its territory with FDIC assisted acquisitions of failed banks.

I have book a profit on a 50 share trade, and currently own 100 shares. Bought: 50 RNST at 13.70 Added 50 RNST at 15.85

3. Bought 50 GSPRA at 20.86 on Tuesday ( Coping with the Federal Reserve's Jihad Against Savers Strategy and the Inflation/ or Deflation strategy)(see Disclaimer): This is another security that I have bought and sold many times.  The last few transactions were for small profits plus dividends. Sold 100 GSPRA at $21.9 (October 2009); Bought 50 GSPRA at 18.8 (May 2010); Sold 50 GSPRA at 20.03 (July 2010); Bought 50 GSPRA at 21 (December 2010); Sold 50 GSPRA at 22.44 (March 2011). I have also bought and sold the functionally equivalent security GSPRD. Bought 50 GSPRD at 21.58

I am not excited about owning this security. It does have the advantage of paying a qualified dividend. The coupon is the greater of 3.75% or .75% over the 3 month LIBOR rate.  This kind of security therefore possesses some inflation and deflation protection in the same security. The minimum payment is the deflation or low inflation component of that protection, while the LIBOR float provides a measure of inflation protection when that inflation results in higher short term rates.  Given the Jihad by the Federal Reserve against Savers, short rates are abnormally low now, hugging zero for 3 month treasury bills (.025%) and around .25% on the 3 month LIBOR.  WSJ Both of those rates are substantially below the inflation rate producing strongly negative real rates of return before taxes.

This type of security has a number of advantages and several important disadvantages: Advantages and Disadvantages of Equity Preferred Floating Rate Securities; see alsoAnalysis of Prior Question about Goldman Sach's Floaters; Floaters: Links in One Post; and Goldman Sachs Synthetic Floaters and Floating Rate Non-Cumulative Preferred

Prospectus:  SEC

4. Added 50 MFA at 7.78 in the Roth IRA on Tuesday ( Coping with the Federal Reserve's Jihad Against Savers Strategy)(see Disclaimer): This is a slight average down from a recent purchase of 50 shares at $8.  As noted in that post,  MFA Financial is a Mortgage REIT that uses a lot of leverage to buy mortgage securities.  I purchased the first fifty shares before the recent ex dividend date. Given the current favorable operating conditions for this type of company, it is able to offer a handsome quarterly dividend of 25 cents per share which equates to around a 12.85% yield.

Hopefully the Crazies will not cause the U.S. government to default or suffer a downgrade from a major rating agency. Mortgage REITs own a lot of mortgage securities originating from GSEs and who backs that debt now? You have to draw lines between the dots as an investor.

MFA, unlike several of the mortgage REITs, does own non-agency related mortgage securities which also adds a layer of risk, assuming the U.S. remains a triple AAA credit and continues to back Fannie and Freddie. According to this article in  Seeking Alpha, MFA also has a high percentage of its assets in adjustable rate mortgages that at least in theory provides more interest rate risk protection. This is a link to a recent  Seeking Alpha article just on MFA.

My general approach to Mortgage REITS will be to trade them for small profits. I am solely interested in the dividend yield provided by these securities when held in the ROTH IRA account.

5. Sold 300 out of 1000 MMT at 6.89 on Tuesday (see Disclaimer): These shares were bought in a satellite taxable account last March.  

Profit Snapshot  = $64.1

Generally, the two satellite taxable accounts are mostly devoted to savings accounts, certificates of deposit, money market funds, and a few conservative mutual funds.  When the rates for maturing CDs fell, the abysmally low money market rates, and the low savings account rates payable even at online banks, I started to invest some funds in those accounts in dividend paying individual securities, primarily regional banks, CEFs,  electric utilities and a few preferred stocks. The purpose is simply to receive a few dividends and then to exit the position at a profit, no matter how small. Eventually, when the FED ends its Jihad against savers,  I will return to buying online certificates of deposit and leaving excess funds in money market and savings accounts.  This will most likely mean a money market yield in excess of 4%. Until then, I will be moving in an out of a variety of securities that pay me more, and I will be assuming of course more risk for that increased level of income generation.

I prefer to own this type of security in the ROTH IRA.

6. Added 50 FNFG at 12.8 on Tuesday (Regional Bank Stocks' basket strategy)(see Disclaimer): This purchase was made in the same satellite account as the sale of MMT mentioned in Item # 5 above. I now own over 250 shares of FNFG in that account with reinvested dividends. I own another 50 in the main taxable account:

50 Shares FNFG Average Cost 11.9

Before FNFG fell in price, I had intended to sell those shares at over $14 in August, to realize a long term capital gain. Now, I intend to hold onto those shares and to sell the 250+ held in the satellite account when and if the shares exceed $14.5.   I am now slightly under water on those shares: Bought 50 FNFG at 13.7 Added 50 FNFG at 12.62 Bought 50 FNFG at 11.7 Bought 50 FNFG at 11.74 Sold 50 of 250 of FNFG at 14.67 (February 2011 Post) Added 50 FNFG at 13.97 

First Niagara is a well capitalized bank with an extremely low Texas Ratio.  It recently completed the acquisition of another well capitalized bank, New Alliance, that I owned at the time of the merger announcement. Bought NAL at 11.76

While the shares have not performed well since I started my position, I do believe that this bank is well positioned for growth in the Northeast.

The quarterly dividend is currently 16 cents per share: First Niagara Financial Group  At at total cost of $12.80 per share, the yield is around 5%.

I discussed the 1st quarters earnings report at Item # 3  FNFG.  The press release for that earnings report can be found at First Niagara.

FNFG is expected to release second quarter earnings before the market opens. I will discuss that report in a post next week. I am running behind discussing my trades. 

Obama Praises 3.7 Trillion Dollar Bi-Partisan Plan to Cut the Deficit/EK Bonds/Google at $600/AA/KODAK 2013 Bond/KO/Bought 100 IGI at 20.7 in Roth IRA

Jeff Greenfield  wrote a column in The Washington Post, postulating that a third party would emerge in the U.S. and win the 2012 Presidential and congressional elections in the event of a U.S. default. I am inclined to agree that a third party will emerge, primarily at the expense of the GOP. 

I have sometimes mentioned that my core inflation rate is running close to 5% now, the "MeFlation" rate. Needless to say, the "owner equivalent rent" non-cash component to the Labor Department's CPI computation is irrelevant to my personal inflation rate. I fail to see the relevance of a computation that attempts to estimate what I would pay in rent for the house that I own without a mortgage. Zweig discusses the importance of the "MeFlation" in a 2010 article in the WSJ.  When planning for retirement, that is an important number to take into account, as explained in an article at   The  Morningstar. Over a thirty year time span, inflation can erode the value of one's savings in a major and expected way, particularly when one loses focus on the "MeFlation" rate and instead accepts the government's number as the appropriate number.      

There was an interesting historical tidbit in the NYT book review of "Railroaded: The Transcontinentals and the Making of Modern America", a new book written by Stanford history professor Richard White.  Collis Potter Huntington's private railway car hit a young woman, Johanna Grogan, in 1880.  Ms. Grogan worked for $2 a week in a nearby hotel and gave most of her earnings to her parents who were trying to support ten children. Bloomberg

At first, Huntington, a millionaire several times over, made a public offer to pay for the young woman's medical expenses. When she died after an amputation, Huntington was presented with a bill for $622 to cover Johanna's medical bills and burial expenses. He refused to pay it, asking how would he protect himself from "swindle" as long as he showed "substantial sympathy". It is always upsetting to the TBs to actually disclose the sordid history of railroad barons buying politicians by the boatload, a well documented fact from their era, along with their refusals to adopt the most basic safety precautions in the pursuit of profit. Any accurate historical account is anathema to the TB who much prefer creating their own reality. An advocate for responsible capitalism is equivalent to being anti-capitalist to them.

Joe Nocera argues in his NYT column that Rupert Murdoch has "Fox-ified" the Wall Street Journal. While the WSJ editorial page, which I do read, has always been skewed to the far right, I have noticed that extremism gradually creeping into the main body of the newspaper when the article discusses politics. (see:War at the Wall Street Journal: Inside the Struggle To Control an American Business Empire"  by Sarah Ellison) I noticed that the overall quality of the journalism started to decline before Murdoch acquired the paper. And, as one would expect, the quality declined more after Murdoch gained control, though those standards are still way higher than the "fair and balanced" network. As shown by recent events involving phone hacking, the "conservatism" of Murdoch's minions does not include respecting laws governing privacy, which I thought was one of those pesky Real Conservative values. 

Obama praised a 3.7 trillion dollar plan hatched by conservative and liberal senators to reduce the deficit. MSNBC NYT This is a link to the plan: The Gang of Six's plan  This does appear to be the first bipartisan plan.  Default on the debt is clearly a catastrophic option entertained only by reckless and stupid people. I am generally in favor of a plan that would include revenue increases from closing loopholes, as well as significant spending reductions. Apparently, this plan has both, and at least has some balance to it.

The GOP House members are totally lacking any balance whatsoever. They are totally out of balance type of people. It would be fair to say that Eric Cantor, the Speaker of the House, is a both a zealot and a reactionary who takes his orders from Grover Norquist. I heard the statement about identifying Cantor's boss from a former Reagan official last night.  Cantor has already thrown cold water on the bipartisan deal hammered out among the senators.

Perhaps Cantor could listen some to Ronald Reagan rather than to the zealots and Know Nothings. The debt ceiling was raised 18 times under Reagan, Factcheck.  This is a link to an audio address given by Reagan in 1987 on the importance of raising the debt ceiling: YouTube Those remarks by Reagan are quoted in Dana Milbank's column in  The Washington Post.  Those comments by Reagan are far too mature for the GOP mob in the House, who seem to lose their spendthrift ways when voting for earmarks impacting their own districts. NYT

David Brooks, a republican, has some perceptive comments about the GOP and their incompetence in failing to seize a compromise offered to them by Obama.  NYT  The article is particularly perceptive on why they are so incompetent.

One of the few politicians to make any sense to me on this debate was Senator Conrad (D-ND) in his interview on MSNBC last night. He was one of the Gang of Six that produced the bipartisan plan.

A recent poll showed that 71% of the American people disapprove of the way the GOP has handled these negotiations. CBS News The remaining ones are no doubt TBs and assorted Know Nothing zealots who do not even realize that the House GOP members are trying to screw them.

The stock market took off when Obama spoke about the bipartisan plan yesterday. It clear that Obama is willing to compromise, which includes entitlement cuts, but is understandably unwilling to throw the poor and the middle class to the wolves which is the extreme reactionary position of House GOP members, presented to the Democrats on a take it or leave it basis.

I will discuss the extremist GOP House plan tomorrow, which attempts to impose virtually the entire burden on the poor and middle class without even making an effort to close tax loopholes to raise revenues. According to the zealots, revenues can not be raised by a single dollar even by closing an abusive tax loophole. I have thoroughly discussed already how the Ryan budget plan, approved by 235 House GOP members, gives the middle class the shaft on Medicare. GOP's Plan To Bankrupt the Middle Class;  See also: Kaiser Health News,  cbo.gov Ryan_Letter.pdf, CBO Report, PolitiFact and kff.org/medicare/.pdf.

1. Alcoa (own): A Credit Suisse research report summarized in Barrons, claims that AA shares are undervalued, based on that firms assessment that aluminum prices are sustainable at current levels. The firm reiterated its outperform rating. Based on the firm's downgrade of AA's E.P.S. estimates for 2011-2013, I do not believe that outperform rating is justified, assuming the investor accepts the CS forecast.  AA is a cyclical company and the new forecast calls for an E.P.S. of $1.7 in 2013, up from $1.40 in 2012. At over $15 per share, the P/E is close to 11 times earnings, which would be cheap for a consumer staple, whose earnings are steady and reliable. An 11 P/E for a cyclical company, a couple of years into an up cycle, is more of a reasonable valuation, or within the zone of reasonableness, suggesting there is not that much upside over the next year unless those estimates prove to be too conservative. Part of the problem is the increasing input costs that are slowing earnings growth. 

2. Sold 5 shares of Google at $600 Last Monday (see Disclaimer): I had previously pared my stock allocation based on the economic slowdown and the increasing possibility of another recession. LB is In a Slow Mo Trading Mode While Preserving Recently Raised Cash Stash (see video interview with Robert Shiller). Last week the NY FED reported that is manufacturing index remained below zero for July: Empire State Manufacturing Survey 

The OG is moving toward a safety net of income paying securities and a large cash allocation.  When the OG enters this capital preservation mode, no position is safe from disposition. RB howled in protest of this sale, noting that it would not have sold the shares for less than a $1,000.  The OG pointed out that Headknocker still owns a lot of stocks. "None that the RB wants", a voice was heard in reply.  Given the significant pare of the stock allocation during the Spring, I am already comfortable with the level of my reduced exposure and find it increasingly difficult to find anything else to sell.  

Google closed yesterday at $602.55, up $7.61 for the day.

3. KODAK (own Two 2013 senior bond only): The price of this bond has fallen steadily since the ITC rendered an inconclusive decision on EK's patent infringement case against Apple and RIMM.  ITC Decision on EK Patent Litigation A WSJ article  highlights this recent decline and Wall Street's growing concerns about Kodak's ability to survive.  The current rating on the 2013 bond is Caa2 by Moody's and CC by S & P.  FINRA The bond has continued to slide, falling close to 10% in value since the ITC decision. EK is losing money and burning cash.

RB Bought 1 Eastman Kodak Bond Maturing 2013 Junk Bond Ladder Strategy

4. Coca Cola (own)(Common Stock Dividend Growth): Excluding items, KO reported 2nd quarter earnings of $1.17 per share based on 5% worldwide volume growth excluding recently acquired cross-licensed brands, primarily Dr. Pepper. This was one cent better than expectations. North American volume was even in the quarter excluding those new cross licensed brands.  KO estimates that the earthquake and tsunami in Japan will reduce full year results by 3 to 5 cents per share.

I have quit reinvesting the dividend to buy additional shares based on the current price.  After selling some shares to book profits (from the 2009 lot), I currently have an average cost per share of $50.83:

132.998 Shares of KO Unrealized Gain= $2,459.41 As of 7/20/2011

I discuss the reasons why KO falls under my dividend growth strategy in several posts:  Item # 1 Barrons Recommendations and My Trades; Item # 2 KO. I still own some shares bought at 38.72 (March 2009). The remaining shares were bought with reinvested dividends, and open markets purchases: ADDED 50 KO AT 54.26 (April 2010); Bought 50 KO at 53.77 (April 2010).

Coca-Cola rose $2.2 a share yesterday, closing at $69.32.

5. Bought Back 100 of IGI at 20.7 in ROTH IRA (Coping with the Federal Reserve's Jihad Against Savers Strategy)  (see Disclaimer): IGI is a closed end investment grade bond fund that I have bought and sold many times. I would refer anyone interested in it to those posts. Added 100 IGI at 19.65 (MARCH 2011); Added 100 of the CEF IGI at 19.78 (February 2010); Bought 100 CEF IGI at $19.89 in IRA (February 2010); Sold 100 IGI at 21.26 In IRA; Sold:100 IGI @ 20.75 (November 2010); Sold 100 IGI @ 20.76 (May 2011). I noted in that last post that my trading profits in this CEF totaled $328.8, plus dividends. I am content with making anything on the shares.

Briefly, I would just mention that this fund pays monthly dividends at the current rate of 10.45 cents per share (Distributions) and has a term date for liquidation in 2024. It is ex dividend today, and yields close to 6% at a total cost of $20.7. As discussed in the foregoing posts, the term date provides some interest rate protection that would not be present in a bond fund, with similar securities, that has not made a commitment to return investor's money at a date certain. The managers of a term date fund also have to keep in mind that all bonds will have to be sold by a date certain, so many of the bonds owned by the fund will mature before that liquidation date.

Sponsor's web site:  IGI Details
Sponsor's List of Holdings:  IGI Holdings as of 5/31/2011
Last SEC Filed Shareholder Report: www.sec.gov
Link to Morningstar page: Unrated
IGI Page at the  Closed-End Fund Association



Western Asset Investment Grade Defined Opportunity Trust closed at $20.71 in trading yesterday, down 35 cents (more than the dividend). I normally do not buy the dividend. I do not view buying a dividend to include buying a security the day before the ex dividend date when the decline in the share price is greater than the dividend.  So, even though IGI is ex dividend today, I do not view my purchase yesterday as buying the dividend given he decline in price being 36 cents at the time of my purchase and the dividend being 10.45 cents. IGI was probably selling at a small discount to its net asset value yesterday.

IGI is discussed in this recent article published at Seeking Alpha.

IGI closed yesterday with a net asset value per share of $21.46. Based on the closing price of $20.71, the discount to net asset was at - 3.49%. The stock is ex dividend for its monthly distribution today.

At least in the ROTH IRA, the dividends are tax free and so the yield is close to 6% tax free when this security is bought in that account.

I made several other trades on Tuesday that I will discuss in the next post.

Sold Remaining 50 GSBC at $19.5/MOL/GOPs Effort to Undermine the SEC/Bought 50 FPCPRA at 25.59/NHTB/GOP Leaders Vote 5 Times for a Debt Limit Increase During Bush Presidency

Bank of America (BAC) common shares hit a new 52 week low yesterday, falling below $10 on heavy volume. I have noticed that the equity preferred and trust preferred securities have also been weak over the past several weeks as the Countrywide acquisition causes further large settlement charges. Some have estimated that this boneheaded acquisition by Ken Lewis will end up costing the bank 25 billion dollars to 37.5 billion dollars Los Angeles Times BAC shares closed yesterday at $9.72 after hitting an intraday low of $9.53.

The GOP's latest attack on the U.S. sovereign debt rating is already having an adverse impact on the pricing of  U.S. agency mortgage-backed securities. MarketWatch That weakness has caused some downdraft in Mortgage Reits that buy those securities with borrowed money. The earlier attack occurred in 1995. There would likely be few safe havens in the event of a U.S. default caused by the Crazies. Reuters Money

For future reference, this is how congressional representatives voted on the Ryan budget plan: Final Vote Results for Roll Call 277 There were 235 republicans voting for that budget and zero Democrats. Yesterday, I urged the passage of a bipartisan bill that would deny traditional medicare for all citizens in those 235 congressional districts, currently  under 55, as an experiment lasting 300 or so years.   Modern Day GOP: No Longer A Conservative Party Instead those citizens would be offered only the GOP plan. A reader pointed out that the existing residents would not likely live that long. Admittedly, I did not flesh out the entire proposal. To be fair about this recommendation, I am saying that all of the current residents of those districts currently 55 or younger, as well as  all of their lineal descendants for the next 300 years, be denied traditional medicare and be required to buy that private insurance plan with the voucher which will be increased by the CPI, rather than the actual increases in health insurance costs and premiums. The GOP says that it is a good deal for those folks, and the deal will stick regardless of where the residents of those district and their descendants live hereafter.  I am just trying to be as fair as the GOP on this issue.

Egan-Rating downgraded its rating of U.S. government debt to AA+ from AAA. WSJ.com  Sean Egan gave an interview to Barrons where he was particularly negative on European financial institutions. He finds that most of the European banks do not have enough capital to meet their anticipated losses.

Goldman Sachs downgraded its estimate of 2nd quarter U.S. GDP to 1.5% from 2%. I suspect that the final number will be closer to 1%, possibly lower.

This is a link to Cramer's discussion on the market and the debt limit negotiations: MSN Money

I do not view the potential upside to major stock indexes to be worth the potential near term downside. That is one reason why I have sold virtually all of my stock ETFs. Some individual stocks, previously sold, are coming back into my buy ranges however.

Moody's downgraded the bond rating of Sears Holding to Ba3 from Ba2. I own 100 of SSRAP, a senior bond issued by Sears Acceptance and traded on the Grey Market.  Bought 100 SSRAP at $17.25 (TC-Underlying Bond from Sears Acceptance)

Credit Suisse is under investigation by the Justice Department for alleging assisting "Job Creators" in their evasion of U.S. taxes. Earlier in the year, four Credit Suisse private bankers were indicted for helping U.S. citizens evade their tax obligations. NYT  Reuters WSJ The earlier criminal investigation of UBS focused on that firms efforts to help Job Creators evade about 300 million in taxes from 2000 to 2007, according the NYT. (see also 2009 article from USATODAY.com) HSBC has notified a number of its Job Creator clients that the IRS is seeking information about their undisclosed overseas accounts.  

Gold spurted to over $1600 per ounce.  The P.M. London Gold Fix yesterday was at $1599. Current Statistics | LBMA I would anticipate a maximum level violation on MOL today or soon. Sold 100 MOL @ 10.3 (Nov 2010); Bought 200 MOL at 9.95 (August 2010). I currently own 100 shares.  I previously calculated the maximum level at $1609.79 per ounce, Stocks & Politics (Nov 2010 Post). This one has a minimum annual coupon of 2%. The current annual period ends on 11/17/11, so I would view it as close to nil that this security can avoid a maximum level violation now.  MOL Prospectus  Gold is just too strong.

The GOP House members have blocked funding for the 2007 law that is intended to increase light bulb efficiency.  The GOP is upset that the government is attempting to lower by six billion dollars per year the consumer cost for light bulbs. NYT The British newspaper, The Guardian, noted that the Republicans claimed that the legislation was an assault on individual liberty to choose more costly, energy inefficient bulbs. This legislation, signed by President Bush in 2007, requires a 25% improvement in efficiency starting with the 100 watt bulb in January 2012.  

The House GOP Appropriations committee has slashed funding for the SEC by 222.5 million in an effort to undermine enforcement of securities laws by that agency. (see column by James Stewart  at NYT) As noted by Stewart, a provision in the Dodd-Frank law provides that the fees collected by the SEC can not exceed its budget. This reduction will cause the SEC to collect 136 million less in fees from regulated institutions. Money talks to the GOP legislators.  

It probably does not help in budget discussions when one side operates under delusional theories. Last year, Senator McConnell (R-KY), the GOP's Senate Minority Leader, said that there is "no evidence whatsoever that the Bush tax cuts actually diminished revenue". He added that all republicans agree with that statement. A more accurate statement would be to say that there is no credible evidence supporting McConnell's statement. The CBO estimated that tax cut accounted for a 259 billion dollar increase in the budget deficit in just one year. (see other discussions at   Tax Policy Center; PostPartisan; TIME.com; www.cbo.gov 10PercentTaxCut.pdf; NYT; Five myths about the Bush tax cuts: tax cuts "drove revenue down sharply")

During  the Bush Presidency, McConnell, Eric Cantor and Speaker John Boehner voted 5 times to increase the debt limit, thereby increasing that limit by almost 4 trillion dollars. The main difference between then and now is that a Democrat is currently in the White House. All of those individuals also supported the Iraq invasion, adding close to a trillion to the debt,  and the Bush tax cuts for the "Job Creators".  

1. Bought 50 of FPCPRA at 25.59 in the ROTH IRA on Friday (see Disclaimer): This bond may be called at anytime at its $25 par value which is one reason for limiting my purchase to just 50 shares.  Another reason for the negligible purchase is that my current yield is slightly less than 7%.  I have previously sold this same security in the ROTH IRA. Bought 50 Shares of FPCPRA Bought 50 FPCPRA at $24.95 I have come back to it due to a lack of viable alternatives.

When owned in the ROTH IRA, a 7% tax free yield for a good credit risk is not so bad in the third year of the Federal Reserve's Jihad against the Saver Class. This security does pay interest which is another reason for holding in the ROTH IRA, since interest payments would be taxed at my highest marginal rate in a taxable account.

FPCPRA is a typical Trust Preferred security. This TP originates from FPC Capital, a Delaware Trust, who used the proceeds from the sale of trust preferred securities to purchase a junior bond issued by Florida Progress, an electric utility operating in Florida. The TP represents an undivided beneficial interest in that bond owned by the Trust. Florida Progress was later acquired by Progress Energy (PGN). And, PGN is in the process of being acquired by the even larger Duke Energy Corporation (DUK). I own the common shares of Duke Energy. Stocks & Politics: DUK If that merger is consummated, and assuming FPCPRA is not called, it will become an obligation of Duke Energy. I am not currently concerned by the credit risk of this junior bond.

FPCPRA has a 7.1% coupon, paid quarterly, on a $25 par value. The TP and the underlying bond mature on 5/15/2039. Prospectus: http://www.sec.gov

In the unlikely event this security is not redeemed before 2039, and I live that long, that would be close to 28 years of receiving about 6.9% based on my total cost. Since that is in effect a tax free rate, the money would double every 10.39 years. Estimate Compound Interest

FPC Capital I 7.10% Cumulative QUIPS Series A (FPC.PA) closed at $25.51 in trading yesterday.

Trust Preferred Securities: Links in One Post

2. Sold Remaining 50 shares of GSBC at 19.50 Last Friday (Regional Bank Stocks' basket strategy)(see Disclaimer): Due to my level of discomfort with the Crazies in Washington, I am selling some of my recently acquired stock positions. That discomfort is on top of the level of concern about the current trajectory of the U.S. economy.  I just bought those 50 shares of GSBC at $17.27.

The brings my realized capital gains (2010-2011 to date) for the regional bank basket strategy to $7,319.75. Item # 3 Realized Gains Regional Banks

Great Southern Bancorp closed at $19.08 on Monday, down 40 cents.

3. New Hampshire Thrift (NHTB)(own: Regional Bank Stocks' basket strategy): I bought 100 shares of NHTB at $9.51 (January 2010 Post):

100 NHTB +$420.1 Unrealized Gain on the Shares as of 7/16/2011

The dividend yield at my cost is over 5%. New Hampshire Thrift Bancshares. As the name suggest, this is a small savings bank operating in New Hampshire, with some operations in central Vermont. The bank currently has 28 offices. I did look at the pictures of those branches which are available by clicking the branch links found at at Locations & Hours.

My main criticism is that the quarterly dividend has not been raised since my purchase in January 2010 and still stands at 13 cents per share. Quarterly Dividend I am taking that distribution in cash. Another issue is earnings growth. As of 6/30/11, the dividend payout ratio is 40.63%.

New Hampshire Thrift reported second quarter net income of 32 cents per share, unchanged from the 2nd quarter of 2010. As of 6/30/11, NPLs to total loans was at 1.32%, and the Tier 1 core capital was at 8.46%. These small banks do not report in their press release all of the data viewed by me as important.

Part of the banks equity capital includes two TPs:   Form 10-Q at page 19. Since this bank had less than 15 billion in assets as of 12/31/2009, it can continue using those TPs as part of its equity capital. Both TPs are in the principal amount of 10 million dollars and mature in 2034. The bank still has outstanding 10 million in government preferred stock, which is supplying part of its TIER 1 capital (see page 26). The bank is currently paying just 5% in preferred dividends to the U.S. government, but the coupon rises to 9% five years after the issuance of that preferred stock.

Under the circumstances, which includes the continued presence of government money supporting TIER 1 capital, the lack of dividend growth and the unrealized long term capital gain, I am probably a weak holder of this stock at the current price and an even weaker holder at above $14 per share.

New Hampshire Thrift Bancshares (NHTB) closed yesterday at $13.59.  

Bought 1 Senior Texas Industries 9.25% Bond Maturing 8/15/2020 at 97.5/Junk Bond Ladder Table/Sold 107+ SBSI at 20.5/Modern Day GOP: No Longer A Conservative Party

Paul Krugman has taken up a new profession-psychoanalysis-when he asserted last week that the republicans are indeed Crazy.  NYT  I am not going to endorse that sentiment.

I do believe that it is reckless and exceedingly irresponsible for one party to blackmail the other using the Full Faith and Credit of the United States, which used to be sacrosanct when politicians were less irresponsible than now. If the Democrats had 240 votes in the House and demanded that a GOP controlled Senate and republican President accept a tax increase on their benefactors as a condition to the Democrats approving a debt limit increase, the howl could be heard at the outermost limits of the known universe. Only Irresponsible Fools would put the Full Faith and Credit of the United States government in play.

I have been surrounded by True Believers (TBs) my entire life, observed them for decades in their natural habitat, and have lived in one of their many enclaves for several decades. Based on careful observation that would make any anthropologist proud, I came to the conclusion many years ago that facts do not matter to them. Reasoned thinking based on reliable information is simply irrelevant. In fact, a deliberate and very persistent effort is made to avoid contact with any information inconsistent with their beliefs, apparently formed at birth, or acquired no later than the age of 2. Everyone has their quirks.

Rigidity of thought and a herd instinct are certainly present and a dominant traits in virtually all TBs. String together about 20 cliches and you have the entire belief system in a nutshell. I say "virtually all" based on a suspicion that there are a few open minded ones willing to think for themselves somewhere in the U.S. I simply have never met one. Flexibility based on processing accurately new information is totally lacking in them.

And the relatively common human trait of hypocrisy does appear to me to be enhanced in most members of that tribe.

While professing to be a proponents of conservative ideals or values, many have beliefs that are antithetical to true conservatives. Southerners are particularly sensitive to some of those ideals expressed by pseudo conservatives, since those same values were expressed by States Rights Democrats in this region many years ago, who now are members of the other tribe. That breed of Democrat called themselves conservative too. The current batch of GOP politicians who masquerade as conservatives are in fact reactionaries who wish to turn the clock back about 50 years, or in some cases around 100 or so years.  

Paul Ryan is just one of the new breed of reactionaries. Chairman Ryan Gets Nearly Two-Thirds of His Huge Budget Cuts From Programs for Lower-Income Americans — Center on Budget and Policy Priorities He has such an earnest face, though he does have trouble telling the truth, which is one of those inconvenient and pesky conservative values that Ryan left at the alter when he became a zealot with an earnest face and manner. (see FactCheck.org analysis of just one speech)

As an experiment, lasting for about the next 300 or so years in the U.S., I would urge the adoption of Ryan's Medicare plan in every Congressional district whose congressional representative voted for it. Please noted that this would include my congressional district, whose representative is a Michele Bachmann twin or at least shares a common DNA strain: Tennessee's 7th congressional district (the OG is over 55, falling under traditional medicare, and would be receiving tax breaks too). The voters in those Districts need to be confronted with the consequences of their actions.

In about thirty years or so, when the middle class voters in those districts are living with the kids, after selling their homes to pay the private insurance premiums in their golden years, perhaps one of them will trip on one of their grandkids toys, break a hip, and be relegated to the local hospital to share a room with someone, due to coverage issues in their private insurance plan. The other patient who informs the TB that the earnest young man long forgotten had not exactly been frank with them about this private insurance/voucher deal. "Why didn't Rush or Sean tell me about that", the TB will ask, as the light bulb goes off in his head for the first time since birth?

But that is all for the common good of us rich folks, the "Job Creators", so no one should mine at all. After all the GOP approved budget plan reduces federal revenues by 3 trillion dollars by granting rich folks and corporations more tax breaks, according to the  Tax Policy Center, which the GOP promises somehow to make up elsewhere. Bloomberg This was noted by Krugman in a recent column lambasting Obama for knuckling under to GOP demands. NYT Liberals like Krugman are becoming increasingly critical of the President, who has moved toward the center on a number of issues. Due to the reactionary being so far to the right, an American centrist is actually viewed by the reactionaries as a socialist.

Only a centrist approach will solve the budget problem. For those who want to try their hand at balancing the budget without any tax increases, or worse, more tax breaks for the wealthy, the Committee for a Responsible Federal Budget provides you with an opportunity to try your hand at that task.  The extremist Mike Lee, who sent the conservative Senator Bennett into retirement, will not consider voting for a debt limit increase unless it is coupled with a balance budget amendment. Most republicans are taking the same position: Hill Senator Lee (R-Utah), who wishes to phase out social security and abolish the education department, has not yet specified which programs will be cut to achieve that balanced budget. Mike Lee-An Extremist or a True Conservative?

Ryan does not accept the CBO analysis of his plan as bankrupting the Middle Class during their Golden Years. After all, it does not sound like a winning campaign slogan for 2012 to admit that the GOP wants to give even more tax breaks to the super wealthy and corporations, while throwing the poor and middle class overboard. With that platform, even a couple of TBs might have second thoughts about voting the party line in 2012.

Instead, Ryan believes that the private health insurance companies, in their fervent desire to compete, will turn the private health plans into low cost alternatives. (see interview in HUMAN EVENTS, a reactionary rag that publishes Ann Coulter) In that fantasy world, the seniors who are on traditional medicare will be clamoring to join that private insurance pool and to receive those vouchers from the federal government defraying part of the private insurance premium cost. Really, the GOP expects a majority of voters to believe their reality creations, and possibly a majority will. I suspect that a person would have to be both ignorant and stupid to live in that fantasy world.  As W.C. Fields once said, you never give a sucker an even break.

One way the private insurance companies could lower premiums would be to ration healthcare as noted in the CBO report, NPR. In short, Ryan's competition involves offering a lot of difficult to understand private plans, many of which would skimp on coverage in order to bring the cost down. The OG will not want to abandon traditional medicare to join one of the private insurance plans.

The CBO noted that the private insurance companies need to make a profit, the government voucher is tied to increases in CPI and medical costs have been rising faster than inflation for a very long time; and the private companies have higher administrative costs.  cbo.gov Ryan_Letter.pdf To make the cost competitive, the insurance companies would offer less coverage than traditional medicare. I would suspect that most individuals will discover their coverage gaps in the private insurance plans when they are told that the plan does not cover a certain medically necessary procedure.  TBs are usually not fact conscious until faced with a draconian decision that impacts them.

Apparently, Mr. Ryan and his GOP colleagues do not have much experience with price increases from private health insurance companies, and their efforts to limit or deny coverage, or maybe they are suffering from collective amnesia on that point. But Ryan is sipping that $350 a bottle champagne now with hedge fund managers at D.C. restaurants, and may need to hang out more with working folks. And they do not have to worry about their base asking questions.

Questions such as how does the government save money in the GOP's Medicare plan compared to traditional medicare? (see Kaiser Foundation analysis of GOP Plan:  kff.org/medicare/.pdf and its CBO: Seniors Would Pay Much More For Medicare Under Ryan Plan - Kaiser Health News; CBO Report) The answer is simple- by shifting costs to the citizens and away from the government. The profits to be earned by private health insurance companies off the seniors is just an added benefit for the GOP.  Even Ryan can not dispute that fact. So, instead of admitting to the consequences of what he has in store for seniors, Ryan pretends that profit seeking private insurance companies will come to their rescue.

To reactionaries (about 25% of the U.S. adult population, give or take a few percent), a centrist is really a socialist or worse. Before bankrupting the middle class, and granting more tax breaks to the super wealthy, a centrist would  want to do everything possible to save traditional medicare, and would consequently be labelled by the intellectual  reactionaries as a Libtard or Demorat, a socialist, or commie for advocating such an approach, all of those labels would be applied by right wing extremists to an independent centrist. GOP's Plan To Bankrupt the Middle Class As previously discussed, there is a lot that can be done to salvage traditional medicare before adopting a plan to bankrupt the middle class.

The newly elected GOP extremist from Pennsylvania, Pat Toomey, is not concerned about a delay in approving a debt limit increase.  NYT According to this "expert", the U.S. could prioritize its spending, pay interest on the debt and stiff other creditors. Philadelphia Inquirer Any sensible person, which would exclude politicians like Toomey and his kindred spirit Michele Bachmann, knows that is just rubbish.  A failure of the U.S. government to pay its bills to anyone would be viewed as a default. PolitiFact

Toomey has his own budget proposal, characterized as more "radical" and damaging to average Americans than Ryan's plan by the Center on Budget and Policy Priorities.

Randall Forsyth noted in his Barrons that many of the debt fanatics, his word, would like to see financial chaos resulting from a failure to raise the debt ceiling. In a brief period back in 1995 when the GOP launched another attack on the U.S credit rating, Fitch put U.S. debt on watch for a potential downgrade, and the GOP shenanigans had a real adverse impact on Main Street who seized up hiring as noted by Forsyth. I know that it is hard for Centrists to comprehend, but many of the zealots would like to see the U.S. default.

1. Bought 1 Senior Texas Industries 9.25% Bond at 97.5 Maturing on 8/15/2020 Last Thursday (Junk Bond Ladder Strategy)(see Disclaimer): This is a senior unsecured bond with a 9.25% coupon.  It is my understanding that it was issued to redeem 550 million of senior notes with a 7.25% coupon maturing in 2013. Reuters The company had to pay more on the new notes due to the adverse impacts on its business resulting from the Near Depression and its aftershocks.  

Texas Industries (TXI) is a large cement and aggregate company. Profile That description is sufficient to inform an investor that the company is now losing money.  TXI is expected to lose $1.61 per share in its fiscal year ending in May 2011, and another loss of $.74 per share in F/Y 2012.  TXI Analyst Estimates 

This is a link to the FINRA Information on this bond. According to FINRA, the bond is rated Caa2 by Moody's and B by S & P. Given the recent losses and slow and increasingly fragile recovery, I would be more inclined to go with Moody's rating. I am assigning the bond a 7 in my Personal Risk Ratings For Junk Bonds.

This bond was originally a private issuance.  Last December, the original bond was exchanged for an identical one registered with the SEC. This is a link to the Prospectus.

2. Junk Bond Ladder Table: This is how my junk bond ladder table looks as of 7/15/2011:

                                   

After the OG stared at that table for a few minutes, it occurred to him that maybe he had gone too deep into this strategy. "Off the deep end", LB added, "and that is typical for the aging, past his prime, OG, whose mind is turning into mush". "BUY MORE", the RB interjected, "the JIHAD Against Savers is going to continue for at least another year". The OG responded by taking his afternoon nap, trying to think of some pleasant thoughts before taking a snooze.  Perhaps, it is best not to dwell too much on the Crazies.  

3. Sold 107.248 of SBSI at 20.5 Last Thursday (Regional Bank Stocks' basket strategy)(see Disclaimer):  I bought two fifty share lots in the open market. Bought 50 SBSI at 19.49 Bought 50 SBSI @ 18.73 The remaining SBSI shares came from reinvesting the dividend on one fifty share lot and a 5% stock dividend paid by this bank.  On this trade, the profit came to $225, which takes me over seven thousand in realized gains for this strategy. Item # 3 Realized Gains Regional Banks

Profit Snapshots: $208.69

Somehow, I managed to buy two fifty share lots in different taxable accounts, which sometimes happens when the OG forgets about owning shares in another account when placing a trade. "Or worse, the OG believes that his second trade is in the same account as the first trade when it is not", LB had to add for clarification and accuracy purposes.

The  Irresponsible Fools in the House of Representatives may actually precipitate a financial crisis with their refusal to approve a debt limit increase unless the Democrats cave into their demands. If that occurs, better opportunities to buy stocks will, without question, occur at a later time.  US default: Doomsday for investors There was more than enough to worry about before those Fools put the Full Faith and Credit of the U.S. government in play.  There may not be enough Irresponsible Fools in the Senate to cause a U.S. default, a loss of the AAA credit rating and a spike in interest rates payable on new debt.