Toyotathon..the rest of the story.

Every year at the Christmas and New Years holiday period I get hit with remembering back to the year 1979.  Most of you see the seemingly endless series of TOYOTATHON commercials on the tube I see the word STUPID.  It is bad enough to know how stupid we were at the time, but trust me being reminded year each is not pleasant. In the paragraphs below you will see the rest of the story about the event called Toyotathon. 

 

All this occurred very innocently in the little town in eastern North Carolina of Clinton. However let's set the table first and go back to 1975.  I began my personal working life as an advertising salesperson for the Jacksonville Daily News in Jacksonville NC under the direction of two experienced and knowledgeable supervisors. Now Jacksonville NC is a military town being the home of Camp Lejeune and is full of young Marines with money burning a hole in their pocket. Young Marines have two big desires women and a nice car to drive on days off.  The Daily News the primary media in the market covered the second desire well with lots of automotive advertising since the car dealers wanted these young Marines to come spend their automotive money with them.  If memory serves me there were at the time some over 20 new car dealers in the area and a large assorted group of used car dealers wanting at their share of  this burning a hole in the pocket money. Note that in those days new car dealers usually had one line, Toyota, Fiat, Datsun (you have to be old enough to remember that one) and on and on.  The competition between dealers was intense and the two people, the manager and myself, in the car advertising dept. at the newspaper were kept quite busy selling and handling advertising for these dealers. In fact the Jacksonville newspaper ran more automotive advertising than the Raleigh newspaper at the time. The two supervisors helped teach me the finer points of handling car dealers and part of that was learning how the business operated and automotive talk used at dealers. I was young but a quick study and began to handle as many as 10 or so of the smaller dealers, leaving the big boys to the supervisor. When the boss was out I handled his load as well. The four years of this non stop deep in the weeds learning helped make me pretty good at working with new car dealers and I frankly enjoyed the work and being on the inside action so to speak. I liked new car dealer work so much for years afterward it was not unusual for me to be found at a dealer on Saturdays my day off just to enjoy the atmosphere,  and learn some more.  There came a point I could go into a auto showroom, check the atmosphere,  and know if the auto dealer was successful.

 

Now all this acquired automotive education was taken to a new job when I moved to Clinton NC in July 1978 to begin working at The Sampson Independent.  More money and better opportunities awaited me. My account list there had about three new car dealers and I quickly immersed myself in their business and began to help them sell more vehicles. Since I knew the auto talk and liked it my sales bloomed.  My supervisor noticed my skills with auto dealers and decided to assign me one of her accounts Clinton Toyota. Clinton Toyota was a fairly new dealership that was trying to sell Toyotas in a market that did not see Toyotas other than a bucket of loose bolts. But nevertheless I was assigned and the owners of the dealership there actually called my supervisor and asked her why she had assigned someone else to the account. They had liked having the manager call on them and expressed concern of her no longer handling their business. The manager assured them to just give me a try and she believed they would be happy. Now the manager being a step ahead of the Toyota dealership owners had already figured this out and knew if anyone could help them sell Toyotas I was the one.  It also would help her make her sales goal in her newspaper advertising dept. as well.

 

So the relationship began in early 1979 with the two owners and their new dealership. The final piece to this soon to happen event now comes into play and that is one world renowned Jim Moran. JIm was an automotive marketing legend already when he was asked by Toyota to take over their sales and distribution in Southeast US markets. Jim had already retired, but automotive was in his blood and I supposed he figured it would be fun too. So Jim went about trying to add new dealers to the network and existing Toyota dealers to push sales of Toyotas. Frankly most dealers were just fine with 25 or so new cars monthly making a nice profit on each and selling to people who just wanted a cheap fuel efficient car.  Jim was having a difficult time making headway with getting dealers to push sales notably in the bigger metro areas like Raleigh. Jim looked at Raleigh and saw a large and rapidly growing young population that would be ideal for Toyota sales. However the Raleigh dealer was not interested in pushing Toyota sales hard enough in Jim's opinion . Jim could not understand this since he thought they had an ace in the pocket which was the recent Arab oil embargo which had pushed up gas at the pump prices and should make small fuel efficient vehicles a easy sale.

 

Jim also had another ace in his pocket in the form of the Clinton Toyota dealership owners who wanted to push Toyota sales and were willing to work hard in the attempt. Jim decided to use this dealership in Clinton to get some of his other dealers moving by asking Clinton Toyota to begin advertising in other markets where Toyota dealers already existed hoping this would get them moving on sales. Marketing money was made available to do so. As noted I was now the Clinton Toyota advertising rep and knew just how to make use of the marketing money.  In the winter of 1979 one of the owners Jeff who was the marketing person and I began working closely as a team to market new Toyotas across Eastern North Carolina.  We were moderately successful at doing so and sales picked up to around 50 or so vehicles per month. Jim Moran took notice and asked Jeff and Tommy to make a BIG push in April and May to sell Toyotas.  Jeff came up with the idea of a big sale stretching from April 15 thorough Memorial Day in May. He envisioned selling 500 vehicles during the period. Jeff was a dreamer. Most everyone else though he had lost his mind thinking the dealership could sell 500 in that period. Jeff and I got together one day in late March in his office to put together a marketing plan.  It was here we decided to called the big sale the Clinton 500 and name it officially a Toyotathon. I still do not remember who came up with the phrase first but it was either Jeff or myself, but what I do know it was here at this moment that it was coined. Anyway the sale began and for around six weeks we ran an ads on radio, tv, and newspapers each week in various media markets. By the end of Memorial Day weekend we had sold somewhere around 450 vehicles. 

 

Frankly I believe even Jeff was shocked we sold that many, after all 75 to 100 would have been a good run. I know everyone else had smiles on their faces. Jim Moran took note of this sale and obviously was pleased.  I also expect he pointed to the success in front of some of his larger metro dealers saying see you can do this and more if you just try.  Whatever was said or done what I do know is Jim thought so much of our Toyotathon he did a late 1979 Holiday sales blitz using the name. Sales went big time during that campaign as well and the name stuck. Jeff and I were like proud parents having someone use our creation. Never thinking or considering that if we had been smart we would have copyrighted the name and sold it to Southeast Toyota.  No telling how much money we would have made over the now 34 year existence of Toyotathon. That is why when I see the word I think STUPID.

 

Now through the years when I see Jeff we laugh about it now knowing what we should have done. Oh, the story you will see about Toyotathon officially is that some ad agency came up with the name, but all they did was use the name.  But I know where it really came from and unfortunately Jim Moran is no longer with us to affirm this recollection. Jim took it and thanked us and passed it on to the agency for the official Toyotathon which is nationwide now.   

Now you know the rest of the story.               

Wiped Out?

Hardly a day passes that we do not see that a hedge fund has closed.  Many of the long time hedge funds in the past year have taken significant losses and the resulting exit of investors.  The reasons are many but mostly they revolve around a market where placing hedge bets increasingly result in losses.  Since these losses are hedged the loss factor can sometimes be many times the bet made.  Hedging in it's simplest essence is stock insurance either on the bull or bear side.  Any insurance market where losses become unacceptable or more importantly where the writer of the insurance can no longer see some reasonable assumption that the majority of the hedges will end up making money the writer stops making insurance shop. 

This is exactly what has happened in the US stock markets as more funds are as I said exiting the market.  Without the insurance protection, but more importantly without the insurance protection with reasonable premiums investors are left totally naked.  Like it or not lack of hedging in the stock and bond markets mean a much more unstable investing market going forward. Imagine automobiles and homes where insurance companies will not write insurance or where the insurance cost is higher than most people can afford.  

Our fund has in the last year taken some losses as well, but even into the last quarter we were positive cash flow. Much of this is due to the structure of our fund in that we hedge only certain kinds of stocks and then only a dozen of those that make the cut. We have been selective and our structure has always made cash flow a priority with a built in planning where even when we might be sitting on losses we could cover interest and trading fees until the market improved.  The key was to make enough cash flow via premium gains to make money.  However there has to be some solid base of reliable stock pricing to make this plan work.  In the past year the constant unreliability of stock pricing has made placing hedges almost impossible.  Much of this is due to a political environment where one has no idea where Obama or some other politician makes doing business for this or that business much harder by some policy move.  In the past year be it oil, tobacco, telecom, real estate, business development, and finally utilities have been hit by some form of policy change that resulted in stock price hits that could not be hedged via the normal news cycle. 

The last one utilities is by far the most extreme in that for years those businesses operated as boring regulated dividend producing widow and orphan stocks.  No longer is that the case.  Southern Company the first company we ever blogged about was as boring as they come.  This past week they finally succumbed to the global warming/climate change policy and took a earnings hit.  We honestly believed that was impossible up to now since the regulatory environment they operated in was most positive. 

The past week following the re-election of Obama the full force of the unreliability of earnings and dividends has come forward in a large sell off in the stock market and the pending losses in our fund are now more than our accumulated cash flow over the past year.  We are hoping their will be some relief in the brutal sell off of the past week the next five days prior to the options expiration cycle ending next Friday that will at least bring us back to even for the year. Even if it does not we are now considering ending our hedge activity after many years of doing so since the Obama environment makes it too difficult to do planning with so many unknowns involving policy decisions. 

We have always played with house money and used other people's money to make insurance coverage decisions.  Therefore if we do indeed decide to exit the trading market we leave with no more assets or no less assets than we brought in, just the loss of cash flow.   Frankly in a political environment where common sense and logic are replaced with emotion and cronyism we just prefer not to play.  Over the next couple of months our blogging will be much less as we continue to survey the current trading environment.  We will take this time to unravel our positions and begin an orderly exit of the options market.  We suggest others consider removing assets from danger as well. 

               

Searching for that Helen Keller moment.

This post was put openly online today and I am reposting it here for purposes of my readers to see since many who read my posts DO get the point. 

Yes I have seen many of your posts from my liberal Facebook friends who supported Obama regarding some mean spirited posts on FB you said you noticed by some of your and maybe even my conservative FB friends.   First off I have checked back and did not see any of my posts I considered mean spirited, but maybe you took them that way.  If they came across that way I apologize now.  All my posts either in jests or just pointed on a subject were purposed in finding that "Helen Keller' moment with those of you who I believed did not grasp the seriousness of the election. 

By saying that Helen Keller moment I meant that moment in the life of Ms. Keller where after a long and tortuous effort by her teacher Anne Sullivan where she 'gets it' and begins to frantically want to learn all she can after the light goes off about her situation.  if you have seen the movie you know her teacher was at her wits end trying to communicate but as a teacher knew IF she connected the quest would be worthwhile. 

Not to be overly cocky here, but for most of you reading this post I understand the American free market system better than you do.  I talk regularly as I have for over three decades with small business owners and I connect with their concerns and hard work they put in to survive and sometimes hopefully thrive. Most small business people take great risk with saved capital to make a go of it. Most of you frankly do not since you only see most of this from the outside. I can tell it by hearing you talk or just seeing your posts. You might even think small business people are rich SOB's who either make too much or do not hire you because they want to keep the profits to themselves. Nothing could be further from the truth as the vast majority of small business support local charities, schools, and employ local people.  They also enjoy making life better for their communities as well and like to grow and hire more employees. It is just in their blood.  Something most people do not grasp to be honest. 

Over the past four years most of these small business people have suffered significantly due to the recession as have their employees.  They want things to be better economically and know that the regulatory environment and downright mistrust Obama has placed on them has done nothing more than make things worse economically. They also know Obamacare is the doom to many of these small businesses as they can not afford the costs and stay in business.  To that point Obama had to go to make things better.  Anything else the media tells you or you believe frankly is not true and my efforts on Facebook has been to try and make that point get home.  

Add in the simple fact that Obamacare long term ends your liberty of choice regarding your own health care decisions.  Like it of not that is simple fact.  Your vote for Obama meant that you were willing to throw away your liberty and continue the slow death of small business.   I frankly am sorry I could not connect as I have opined on my blog smalltowninvestor.com which most of you do not read that this election does not effect my personal well being much as I am old enough to literally run out the clock and live life before things really go bad.  In going bad means we can not go on as Obama and some believe forever spending like drunk sailors and not go broke.  Trust me on this one taxing the so called rich there is not enough money to tax to solve the problem.  So to that end I failed in helping most of you see the "Helen Keller" moment.  I am not mad at you I am sad for you for the pain and problems will be yours.  At this point there is no hope and to that I am very sorry.  

 

EXC...Looks like we are wrong again.

In at least two postings in the last couple of months we have mentioned that EXC looked to be a good buy.  The price was depressed and the dividend solid.  Well we look to have called a position wrong once more this year.  

Today EXC took a pounding.   The stock after reporting somewhat weak earnings actually was headed up in price due to some positive comments from the CEO regarding future earnings prospects.  Then the CEO should have shut up, but nope he went on to casually suggest they might consider lowering their dividend payout down the road.  That led to a over $2 sell off in the shares now selling at just over $33.   

Frankly we seem to have laid another egg here with a call and since we own put options on this one it will cost us several thousand to exit the position.  We expect that the stock will recover some since the sell off was quite sharp.  But that will likely be temporary since once said dividends generally are cut.   Also note the stock will go ex-dividend Nov. 15 so if you are holding this stock make that consideration in your decision. 

Our surprise is this stock is a regulated utility and even with the costs of the Hurricane Sandy clean up the regulators would likely allow them to recover the costs via some rates adjustments.  But today the CEO said that former rate adjustment requests were not looking good either.   Since EXC and Barack Obama have some tight connections should we take today's action as a sign Obama is going to lose?

               

 

Boom Economy to Come?

Hardly a day passes that we do not talk with a small business person who tells me some version of this next sentence.  "Once the election is over and I see that Obama will no longer be President I will begin to invest capital in future business projects and hire people."    There are even real estate speculators who are holding off spending in this already lower than low interest rate environment expressing similar comments.  It all boils down to one point Romney will need to do little to get the economy going forward in a more positive growth phase other than winning next week.  We frankly expect by December it will be obvious to most that business is improving. Once he is President, if he wins, and makes some policy moves we fully expect a full economic boom to commence in less than two years. 

Fear of government is not what our founders had in mind when they wrote the constitution.  Actually they wanted the government to fear the people.  With Obama in charge the people, and more importantly investors, will not invest hard earned and saved capital due to concern that either it will be taken away, regulated away, or just plain stolen in some way.  Americans have a choice next week, either change the investing environment to one more friendly to small investors who do create most of the new jobs in this country or continue to live a life of lower expectations and lower quality of life.  Only fools can not see the obvious and with the current government education system in the US we have graduated a number of fools. 

Personally we have withheld significant investments and invested capital since at least last year due to this fear of Obama.  We are sad because there is so much more we can do to provide capital in ways to help investors, small business, and frankly consultation work.  We would be thrilled to begin investing, but fools we are not.  The last two years have not been kind to our trading platform since Obama makes so many rules and changes so often it is simply impossible to provide the 'stock insurance" we like to sell.  We have tried  to do business albeit in a smaller capital structure making sure not to lose money while still trying to make money. Caution has been the way we have done business since the odds are against us when having Obama as President. 

The choice for us next week will be simple.  Expand our horizons and look to make some money and for the first time in awhile make taxable income with a Romney win.  The other option is to pull in our resources in further, continue to stay off the tax rolls,  discontinue most if not all of our important volunteer work and civic boards, and lastly head to the beach for the next couple of decades.  The later one is if Obama wins.  Understand there are many like us just waiting to decide weather to re-engage in this economy and country or leave it to you who have re-elected Obama.  That last point is important because if many of us with capital and volunteer time leave the public environment you younger people will be forced to fill in where we left.  Your lifestyles will change more than you know.  Your choice.

                 

Death and Taxes..Only one concerns us.

This posting is one we wanted to do back over a year ago when we did our series on mentors, but decided not to because of personal reasons. Today those personal reasons are gone so we thought it was time to give credit to someone who was our other financial mentor.  

Death and taxes are said to be the only things certain in life, but in our case only the former concerns us and not the later. The reason is simple our early financial life was directed with annual visits to a CPA in our hometown.  When we first began work life our father told us to go to the local CPA to do our taxes and maybe he would take us as a client.   The CPA likely could have told us no since he had lots of high profile business, but for some reason he took us as a client and we have prospered for almost four decades due to his guidance those early years we used him as our tax accountant. 

H. Donald Scott we suppose saw us as someone who might have a future and maybe could be a good long term business prospect. You see Mr. Scott was frankly one of the smartest and most ingenious people we ever met concerning financial and tax matters. Fortunately we also were a quick learner and good listener and as he dispensed tax, financial, and investing advice we took it in like a sponge.  One thing he told us was that making lots of money was nice, but if you were going to turn around and give lots of it back to the Federal and State Governments why bother to make it in the first place.  It would be like giving up to 50% of your labor away.  The way to change this was to use, take advantage, and manipulate legally the tax code. Treat it almost as a friend and not an enemy. So we did and whenever our CPA suggested a tax free, tax deferred, and tax avoidance strategy we not only listened we applied the technique and used it going forward. 

Mr. Scott on almost every annual visit gave us a piece of investing advice that would help us make money. An example of which was investing in a small Mississippi firm that was making a big push into telecommunications after the deregulation in the 1980's.  We promptly went out and bought 1000 shares of the pink listed stock LDDS that would one day turn into World Comm.  Now yes World Comm and Bernie Ellhers would one day make news from being a company run afoul of the law, but we had long before that period made some very nice profits in the early run-up in the stock price and exited the position.  All that tidy profit in our tax deferred IRA of course. 

Through the years we have used the early training we got from this CPA to move with the prevailing tax laws and rules to maximize our cash flow and minimize our tax bill. Honestly we expect for someone who has been blessed with our income we have likely paid less tax legally than anyone alive. We were audited some years ago when one year we sent in a tax return owing almost no taxes on a sizable income.  The tax auditor told us he thought we were quite clever with our use of the tax code but did tell us that there was a mistake in our return. The mistake was we had forgotten to take a tax credit owed us and we were actually due a refund check for taxes not paid.  All legal and legit of course. 

Now this next statement generally drives liberals and democrats we know ballistic.  Since we retired in 2008 we have yet to pay a single dime of income tax. Better yet if we so desire we can live out this life and never pay a single dime ever.   The reasons are quite simple the years of planning and using the tax code to our benefit as taught us by Mr. Scott has led us to the point of being off the income tax rolls both state and federal permanently if we so desire. 

Yes, anyone can do this, but most people are not willing to do the planning or take the time to make their finances form to being non taxed.  Not paying tax means you get to use the full measure of your income and actually need less than those paying taxes to do live the same standard of life.  Here is the kicker if we were actually looking after ourselves we would prefer that Obama get re-elected because his policy is to continue the current tax code. Only Republicans want to change the code to make everyone pay more by taking out all the huge cornucopia of tax avoidance techniques that are all legal in today's code.  With Romney we would be forced to pay tax, with Obama none. Try that little piece of info on for size liberals. 

Not to get into specifics here because much of this tax free existence is gained from hard learned experience and maximizing the tax code to our advantage but here are a few pointers.  Using tax deferred vehicles to take as much of your earned income off the tax rolls is almost sacrosanct. Roth and regular IRA's, 401-k's, and HSA's should be used to their very max allowed.  There are many small business angles on these retirement vehicles as well.  When spending money always consider how the expenditure can be used as a deduction or credit against any tax one might owe. Consider if there is a business use attached to the expense and spend accordingly.  Investing in individual tax free municipal bonds from your home state are slam dunks that most people either avoid due to the research involved or just not willing to take the time to learn. Once you have tapped out retirement vehicles noted above do not avoid tax deferred annuities as well since they can allow you to add punch to retirement income and take almost tax free withdrawals.   Charitable giving is a easy way to take money that might be taxed and used by the government but instead used by you for social purposes you prefer.   When all else fails buy something that throws off lots of tax benefits like real estate as again I would rather spend my money in some form of private use than government use. Finally and most importantly keep very good and very precise records.  I keep a file in my desk where I write down anything that might save taxes and update it quarterly just to make sure I do not miss anything.   Yes,  all this can be time consuming, but if you treat if like a work to be done where you literally make tax money back then you get paid to do it. 

Our current CPA has continued many of those early techniques and added a few of their own, but without the good start we would not be in position today. 

Anyway all this goes back to our mentor of our early financial life and for the training and smarts we say thank you. 

Third Quarter Report

For those wondering where our monthly reports went to they are gone.  We have decided why spend time doing those when quarterly will do and besides we prefer time ON the beach as opposed to time AT the beach doing reports. 

So with that noted we finished the third quarter with a 7.39% annualized yield.  Our year to date performance has been not very good in our opinion and it is mainly due to the losses we have booked from bad investment decisions this year.  By far the largest mistake was our early year loss in ERF with amounts to about half of all of losses for 2012.  GG was our second largest, but only about 20% of the ERF loss.  We have also included in the third quarter report a pending loss in LO, which unless there is a huge move we will take a year end.  We currently see no other security where we have a loss to take. 

Our trading fees this year are well within our desired parameter and margin costs have been contained nicely.  

Option premiums are producing expected cash flow and dividends are double margin costs which meet expectations as well.  The key to doing any hedge activity is to keep losses to a minimum and premium cash flow maxed.  This year only one part of that has been on track. 

With three months to go we still have the possibility of a double digit percentage gain for the year.  We frankly will be glad when the election is settled and there is some degree of certainly as to tax policy for the next year.

             

CTL. at the right price.

Who knows why stocks sell off sometimes, but they surely do.  CTL has sold off since late Sept. from around $43 per share to now around $39 per share.  The stock went ex-dividend Sept. 7 so that is not the reason and we have scanned the message boards, news releases, as well as the pundit crowd and can find no reason there for the sell off either.  

So with that said CTL is now yielding right at 7.5% and this is a solid dependable yield, not one just pushed up due to the downward move in stock price.  For those who have not deployed assets in CTL now might be the time.  We have no idea if this stock is going to go down some more, but here at just uner $39 per share you get a good company at a good price and a yield that makes anyone owning US Treasuries view with envy. 

So even if CTL reports a weaker than expected earnings this quarter we still like CTL and believe now is a good time to buy.   

We own CTL options.

                

Fourth quarter portfolio

This posting includes our fourth quarter portfolio. Again this portfolio is our TRADING portfolio and does not necessarily mean it is an investing portfolio. 

AGNC...Agency reit that has taken a dip in recent days due to some fed action. We continue to believe it is a good buy and even better at the lower price. Great dividend. 

ARCC...Business development company has become one of our mainstays.  ARCC has gotten so good and so big in it's segment we for all intents and purposes consider it a blue chip. High single digit dividend. 

BCE.. Even at our current trading price of $45 it is overvalued we continue to own and trade it.  This Canadian communications giant makes for sound sleeping away from Obama's economy and missteps. 

CLF... We consider this stock a bargain at the current pricing and with a nice 5% plus dividend like it even more. If the economy moves upward CLF will prosper from it's positions in lots of iron ore and basic minerals. 

CTL...We have owned this security in some form or another for practically forever and will continue to do so.  A very nice and secure 7% or so dividend, growing business, and excellent management. 

ERF... This company has stabilized itself after the dividend cut of the first half of 2012.  The cash flow is there and the oil patches they own good places to do business.  Canadian company too which means none of the silliness in the USA. 

EXC... Owning this one will require patience due to the company having to clean up some issues with financial's. However it is a utility, it is a 5% dividend payer, and it if Obama is re-elected they are in the sweet spot for crony capitalism.  Get in bed with Obama. 

FTR.. We own FTR via long term options that pay very sweet premiums. Roll over and roll over options is what we do.  We feel like Alabama Roll Tide Roll. 

JNK... Junk bond ETF that has given up some sleepless nights of late due to the sell off in this sector. We continue to believe the monthly dividend is safe, but the value might be fleeing. Careful here. 

LO... We have taken a beating in value here, but continue to enjoy the high 5% dividend and monthly option premiums.  We advise careful investing here as well. If Obama is re-elected he could put the hammer down on menthol cigs. 

NCT...We opined on this company at $7.50 and bellied up to the bar and bought a boatload of options. Either we will be right and they are in the best situation regarding servicing foreclosure mortgages or we will lose our shirt.  We believe this stock remains a good buy. 

NNN.. Blue chip triple net leaser.  Buy, collect the 5% dividend, and sleep like a baby. 

O.. Pretty close to the quality of NNN.  But offers a monthly dividend and more risk taking in real estate portfolios. 

WIN... This company has yet to get it's financial house and PR house in order.  So we ride the ups and downs via option premiums believing they will get both in order and become a smooth operator. 

             

Agency Reits get pounded.

If you read our blog you know by now we love agency reits.  These are real estate investment trusts that buy nothing but government guaranteed paper and make money on the spread between the current interest rate from which they borrow money and the higher longer term mortgage rates.  These stocks have been taking a pounding in the last few days since Mr. Bernanke introduced QE 3 saying it was going to be exclusively a buying of mortgage securities in an effort to push low mortgage rates even lower. 

The Fed chief is now blowing his horn as loud as his can saying GO BUY A HOUSE!!  Well with mortgage rates for 30 year loans now approaching 3% anyone with decent credit needing a home needs to step up to the plate.  Heck if you can go with a 20 year loan the rates are approaching 2.75%. This folks is essentially free money for the long term and if rates were the only issue people would be buying like never before. Unfortunately bad credit, uncertainty in future home prices, and lastly employment concerns are keeping this market from a outright boom.  The Chairman has no more bullets at this point. 

Back to the agency reits.  Most of the stocks are down from $2 to $4 and this is due to the concern that the spread for prior purchases of government paper is going to be a loser for the holders now. Yes that very well might be, but the difference between current paper and soon to be issued paper is quite small here and we believe the reits will be able to handle it just fine with a few quarters of reorganizing their mortgage portfolios and moving forward. The real risk always with agency reits is not lower rates, but HIGHER rates. That kills all profits when you are holding paper where the new borrowing rate is higher than what are lending money at currently.  

Well maybe fools rush in where angels fear to tread but we see panic here. 

So to us this sell off which is a panic moment and at some point buyers will see the value and step in is an opportune time to do some buying ourselves.  So for those headed to the door we offer our resources to take these agency reits at lower prices with still great double digit dividends and guaranteed mortgage paper from you.  We suggest you do the same.  Picking from any of these reits is likely a winner, but we prefer AGNC and HTS.  

We currently hold AGNC as an option.

               

 

The NEW Gettysburg Address.

Eleven score and sixteen years ago our forefathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men and women are created equal. 

Now we are engaged in a great election, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We have endured four years of great loss of liberty since the last election. This after many former years of losing liberty in prior such elections. We have coming to a point in time where we will decide if  those who here gave their lives and sacred honor for years in wars and elections so that this nation of liberty might live might have died or sacrificed in vain. It is altogether fitting and proper that we the current generations should have this opportunity to decide the future of this once great republic.  

But, in a larger sense, we cannot improve upon, but we can destroy and hallow out liberty. The brave men and women, some still living and many dead, who struggled here for generations before us, who have saved it, and passed it on to us to pass it on to future generations have sacrificed far more than us so that we may vote to decide our future liberty. The country will note, and long remember how we vote here, it can never forget if we saved liberty for future generations here.  It is for us the living and soon to be voting, rather, to be dedicated here to the unfinished work for which they who fought and lived here before us have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored generations we take increased devotion to that cause for which they gave much devotion and sacrifice—that we here highly resolve that these generations shall not have died or passed on to us liberty in vain—that this nation, under God, shall have a new birth of freedom on November 6, 2012— and that government of the people, by the people, for the people, shall not perish from the earth.

             

Meet the new boss, same as the old boss.

Many years ago when we began to invest in stocks and bonds we spent lots of time looking for stocks that would give us the lottery win by running up 10 or 20 fold.   This type of approach is similar to today's buying of a lottery ticket in a effort to hit a home run.  Frankly the chances of either of these approaches working is so remote the only thing one is doing throwing away your hard earned seed corn money.  Yes, one of 300 million hit the lottery, but if you are dumb enough to put your one precious life span on those odds then you need to stop reading now. 

Sometime in the early 1980's a lady stock broker who was the mother of a friend of ours at the time saw we were starting our  journey in stock investing and asked us which stocks were getting our money.  We gave her a list of some of them and she then noted  ALL of them were not blue chip type selections.  We noted we were looking for a stock that would give us a nice profit quickly.  At this point she looked at us and said that she had been investing her money and others money for over three decades and the only way she had found to make enough to get the big win was to invest in high quality companies over the long haul and let them do the heavy lifting.  We changed our approach and have been most happy with the result.  That is not to say some portion of your assets should be in more speculative issues, but your odds are much better with larger cap companies growing and reinvesting profits. 

Many in today's investing world are doing the same thing with their insistence on placing assets in the so called BRIC's.  That is Brazil, Russia, India, and China.   They are wrong now and if they continue will be wrong three decades from now as well.  Brazil is having issues regarding over heating land prices since much of the land for economic growth is right at the coast and nothing much past about 30 miles inland. Add in some continuing political issues and you got a weakening economy. India can not get past the corruption that has been rampant there for ages and the real killer the cast system that keeps many from moving upward in a true free market system.  Russia is so dependent on oil income that the latest gains in natural gas and the slow lessening on dependence on foreign oil is causing oil income to slip there.  Russia also has killer demographics as the country is actually losing people quickly and that is a sure sign of a dying economy.  China has hit upon the brick wall of economic freedom versus personal freedom and despite liberals in this country pointing to China as the perfect solution to governmental approaches China is finding people really do value personal freedom.  China also has a demographic issue as well and in less than 20 years will be losing population itself due to the one child policy in acted many years ago.  For a final look check out Japan as to how an economy can stagnate when government gets too much in the way. 

Let's throw in that Europe is a basket case and will be until they unravel the social spending issues there that are killing long term investing by people wanting to make a buck. Makes one wonder why people in the US want to follow Obama over that cliff with Europe. 

The only economies in expansion now are the lower Asian economies where young people and capital is still in the start up phase of free markets.  They will grow, but if freedom and free markets are not fully expanded there and  many of the same issues noted above will stop their economies in less than a decade. 

The opportunities for investing for real future gains in wealth and prosperity are mostly right here in the old USA but only if we make decisions now to secure that wealth for us and our children. 

It all comes down to the old boss, being the same as the new boss.  That is IF we in the US decide we still want to be boss.  This is not a political posting, but it is to the extent that IF we want to be the economic superpower again all the ingredients are here to make it happen, lots of free and standing by economic capital, lots of domestic energy, lots of willing small business wanting to expand,  and lots of unemployed workers to put to work.  Allow the free market to work and  presto you will get growth and expansion that will be the envy of the world in less than 5 years.  We opined on this earlier in a posting about how lean and mean companies have got in this country from feasting on things such as cheap long term capital and cheap energy from natural gas fracking.  Now it is up to you re-elect Obama and you get Europe. Elect Romney and some help in the US Senate and you will find jobs and newly minted wealth that will again wow the world.  Having lived most of our life in a world of plenty and economic freedom we know the difference having lived just a few years in the alternative of a command and control economy from Washington and we know what we prefer.  However it is now your choice and your future. We got ours in the 1980's and 1990's when economic liberty and personal liberty were in vogue it is now time to decide if you will get yours or if you prefer this stagnation of debt and decline.

              

Dr. Chandler of Richlands.

Growing up in Richlands in the 1960's we had two doctors in town, but frankly they were as different as night and day. 

Let me describe each one briefly. 

 One had a nice new medical office with the latest medical equipment on the main road in town.  He was by all accounts an excellent doctor who kept up on the newest medical training and had a pharmacy in his office with trained and experienced pharmacists. (note in those days we had no pharmacy in town so having one in the office made sure patients got the right prescriptions in a timely manner). Dr. Mease lived in a upscale house just right out of town and was highly respected. 

The other doctor had his office in an abandoned service station which when you entered reminded one of something out of the dark ages.  There was one light in each of the two rooms hanging from a long cord from the high ceilings with just a single light bulb in the receptacle. Frankly the place was dark since the bulbs did not provide adequate lighting. The floor was concrete and stained from being an old auto service station and the long window length curtains looked quite old. The examining table was a old aluminum table, not an actual medical table.  He kept tongue depressors and stuff in left over nab containers from the former service station and his small desk looked to be maybe brought over on the Mayflower.  Oh, it was clean, but never would anyone today consider even going into a medical office that looked like this one. Add in the doctor lived just down the road in a very old Victorian style home that looked run down and had maybe 3 dozen cats on the porch and in the yard.  Yes, that is not a typo, at LEAST three dozen cats. Dr. Chandler had many words to describe him, aloof, weird, strange, old coot, and most of all quack.  His wife who worked with him was herself a pharmacists, at least I think so, she did fill prescriptions in their office as well, but you wondered where they got the  pills .  Legend had it that Dr. Chandler came from some secret government project in Florida before he moved to Richlands, but I doubt it.  He drove an old black Edsel which he would part under the old service station canopy when he was at the office.  Most people in town would not go near Dr. Chandler, but he was our family physician for many years and here's why. 

First off I am alive today due to Dr. Chandler and have a scar on my right knee to help me remember the ordeal.  In 1959 my birth mother was in her last year of a hard life due to medical problems. That summer before my first grade in school I got on a bicycle  I was not supposed to be riding without supervision and skinned my knee.  The sore quickly got infected and I was taken to the doctor in my hometown, not Richlands at the time, and got a shot of penicillin.  Penicillin was the new miracle cure all drug at the time and certainly seemed the right approach.  Another shot the next week should have killed the infection, but did not.   My soon to be parents, my aunt and uncle, came over to visit my mother and found me on the sofa with a huge and growing blood poison infection in my knee.  The blood poisoning was running up my leg headed to my heart and likely certain death.  My father not knowing what to do allowed my aunt and uncle to take me to Richlands to Dr. Chandler.  The supposed quack doctor realized right off my situation was dire and  applied a old fashioned poultice to the wound. Trust me when I tell you it smelled so bad you could barely stand to be around it, but for two weeks every day Dr. Chandler applied the medicine and sent me home. I missed my only 6 days of school  ever in my life that year, but in about 10 days the doctor got his results and that was the blood poisoning going away.  From then on out I was a regular patient, whenever I needed medical attention until I moved away. 

Of course the real story here is just how my soon to be adoptive mother ended up having Dr. Chandler as her doctor.  My mother having moved to Richlands young had used Dr. Mease and found him a competent and helpful medical doctor, but sometime in the late 1950's got a bad case of strep throat that would not go away. Dr. Mease used the latest in medicine to go after the infection but after about two months told my mother he was at his wits end and maybe it was time to see a specialist in Greenville. So off she went to the Greenville specialist who gave her some powerful antibiotics that seemed to do the trick in a few short days. However not long afterward the strep throat came back and that specialist sent her to Chapel Hill to another specialist who told her the problem was she had been taking too many drugs and her throat culture was barren of good germs and she was told to go home and find some old fashioned non pasteurized buttermilk.  This she did quickly as it was going on about four months now with no relief from the strep throat pain.  Well the buttermilk was non effective. At this point she heard about a specialists at Duke hospital in Durham and she went and paid him a visit.  Frankly that doctor was most puzzled nothing had worked to that time and gave her some more medicine to try and they too did not work. 

At this point my mother being most frustrated at almost 6 months of the infection was telling her customers in her beauty shop about the ordeal and one of them said to her, "well you have tried everyone else, why not go down and give old quack Chandler a go at it."  My mother being desperate figured why not and made an appointment. Dr. Chandler took her into the dark back examining room took his flashlight and looked at her throat.  (Point here he used a standard off the shelf flashlight for medical work, not a precise medical light.)  He asked her where she had been and what they had prescribed and set down in his seat and crossed his legs. He told her "now lets see now you have seen one regular doctor and three specialists and no results?  Heck those people are more educated and smarter than me and I am wondering why would you come to see me, must have been pretty desperate I suppose.  Ms. Jones it could be anything causing your throat problems, might even be the brand of toothpaste you are using."   My mother left his office went home and changed her toothpaste from Colgate to Crest and the throat cleared up in about three days and it never bothered her again. NOW you know why Dr. Chandler was our family physician in Richlands and why I was taken there in my hour of need.

             

Two new stocks to our trading list.

We have backed off some of the larger holdings in some trading stocks AGNC and CTL not because we do not like them, but in a politically charged environment we currently find ourselves in we prefer to keep  our holdings more diversified just in case some candidate attacks a certain group and they take a hit in stock price. We might even go back to both of these stocks after the election because we consider both of them solid going forward for many years. 

Using the opened assets we have added NCT and CLF as new trading securities. 

NCT, Newcastle Investments>  has been one of our favorites all along and this gives us a chance to take part in the mortgage processing business this company is pursuing in greater and greater volume.  There are so many mortgages that are in either foreclosure or close to foreclosure and NCT is buying a good bit of these underwater mortgages at rock bottom prices. Note they are getting sometimes 50% off CURRENT values to take over handling not only private label business, but also government issued paper as well.  NCT keeps them a few years, cleans up the mess, and re-sells them at a handsome profit all the while taking in the mortgage interest. Not a bad business to be in right now and NCT just added a 10% jump in their dividend to show they are making lots of money. We will be adding a short term option and a long term option to our portfolio with this posting. 

CLF, Cliffs Natural Resources,  makes iron ore nuggets and does and smaller amount of coal mining, but iron ore is the key here.  We have had an eye on CLF ever since they raised their dividend earlier this year to over 5%.  That is a nice payout for a metal processing firm and they had serious cash flow to back it up. Of course the economy has tanked and CLF is making much less money now from the huge sales going to China at one time.  The stock has tanked by over 50% and now looks like a bargain.  Personally we believe they can maintain the dividend and when investors notice the price there might be some capital gains here too as well.  We just like bargains and CLF is a outright steal (steel) here. We will be adding it to our trading list now. 

Crystal Coast Restaurants.

Coming up on our 6 month anniversary of being a resident of the Crystal Coast we have had a chance to sample a good number of dining establishments there.  No we are not restaurant critics, but having dined out now for over a half a century we believe we know what good food tastes like and the enjoyment of the dining experience. This is not an all inclusive list, just a limited list of places we believe we have enough  experience in dining we can opine.  One final point since we get no compensation from anyone we can let loose in our opinion and not worry about offending anyone, except maybe a owner or two. 

Rucker Johns..Emerald Plantation...Emerald Isle....We find the food here unusually good with most dishes. Their salads are excellent and the honey mustard hot bacon dressing to die for.  The crossiant that comes with the salad is out of this world with a buttery taste. The Tuscan Turkey sandwich is excellent as well.  Customer service is almost always first rate too.  Unfortunately the ribs are below par and we have yet to eat a steak cooked right in two efforts.  The beef has yet to live up to the quality we know it to be as our insider tells us they buy top of the line product.  We will keep going as we find the atmosphere most pleasant and to our liking and might even try another steak, but right now we will stay with what we know to be good. 

Lazzards Pizza...Bell Cove...Emerald Isle...We can not comment on their subs, but the pizza is excellent. We prefer a thinner crispier crust, but in every pizza we have ordered they do not cheat you on ingredients simply covering the entire pie border to border with lots of fresh goodies. Price is right and be careful about ordering the Godfather size as it is truly a monster.  Staff is quite nice as well. 

Emerald Grill....Emerald Isle....We gave this place a try for breakfast due to a recommendation.  Simply put the food was awful and is hard to mess up breakfast food. Canned biscuits too. We will never go back period. 

Flippers...Emerald Isle...We have tried this place three times and all three were frankly average in food quality.  We did not say bad, just average.  We consider Flippers a tourist trap and prefer not to go back.  One good point is the atmosphere is very family oriented and comfortable. 

T&W Oyster Bar.... Highway 58...Cape Carteret....This is a very nice place to dine and bring a family. Lots of room and good service too. Makes you think you are in a seafood house as it should be.  The oysters as opined by my wife are excellent.  We find the fish better than average, but not great. Deviled Crab is a one time order for us as it was below par.  One point that really bothers me is the regular fish plate offers one average piece of fish for a tourist site price, should be two pieces.  T&W is a fun place to go and comfortable place to dine and we will go back. 

Nickys...Highway 24...Swansboro...This hole in the wall between the bridges has been updated and looks quite nice inside. Nice comfortable bar area too.  We get the fish basket and like the lightly fried flounder of which we get a nice portion of several pieces. The tarter sauce which is homemade is also quite good. Slaw is excellent. The wait staff friendly and helpful.  Now we like Nickys, but our son does not as he sells restaurant food and says they buy average quality product. So you decide, but we will return regularly. Final note the owner here has bought Captain Charlies in  Downtown Swansboro and plans a more upscale menu. 

Ice House...Downtown Swansboro... We liked the location of dining on the sound right over the water and that was as far as it went. Not one single thing we ordered was good and frankly way over priced. We will not be back. 

Cox Family Restaurant...Highway 24...Morehead City...We found this place while trying the Golden Corrall in Morehead City, which was frankly awful and we now know it has closed. Good riddance.  Cox is a family oriented locally owned eatery that we will return to if for no other reason is the price is right. Two can eat for about $10 or so and get a homestyle meal.  We use homestyle and not home cooked as some of the items on the menu are out of canned and jazzed up to be home cooked. However the country steak we had was good and the service very good.  If you are looking a amble amount of food at a family friendly budget this is your place. 

Carteret Cafe... We have dined here one time and really liked the place.  We should have been back earlier for a second run. We had breakfast and it was the real thing, home cooked, and a good portion as well. The service was excellent.  We understand from others there other menu items are very good as well. Priced right is a bonus. 

Clawsons....Downtown Beaufort....It had been a few years since we had dined at Clawsons and frankly it had changed little. The food was average and the prices touristy.  Atmosphere is excellent however and the service first rate as we were a large table that night. Likely will try somewhere else next time in Beaufort. 

Clamdiggers Inn...Pine Knoll Shores...There have been times we loved the food here and there have been times it was nothing more than average.  The last time during this 6 month period it was nothing more than average. The fish was ok, the deviled crabs ok, and the breakfast food was out of a box.  It is not on our list to dine regularly. 

Sweet Spot....Emerald Isle....Ok this is a ice cream joint, but we believe it is worth the review. The owner does all she can to make the place people friendly and she has to since there is a Ben and Jerry's across the street and a Dairy Queen a few doors down.  Karen gets it done by making sure the portions are more than average and the service frankly as good as it can get anywhere. The rocking chairs out front make it a pleasurable experience to get your ice cream and sit awhile watching the world go by. Hersheys ice cream too. We highly suggest you give this place a try.  Maybe we should not and keep the lines down, oh too late now I suppose. 

Emerald Isle Market...Emerald Isle....First try was a wow!  The potato salad and tuna salad were quite good and homemade. You can get Boars Head meat as well and we did and enjoyed a turkey sandwich back home. They are expanding and adding some seats and we will make this a regular stop for good and healthy food. 

Carolina Ale House...Jacksonville....Ok this is not technically Crystal Coast, but we gave it a try while in Jacksonville shopping.  Did it on the suggestion of a friend and I wondered what he was thinking while we dined.  The place was loud, as in very loud and as one of the older set that was an issue. The flat iron steak was plainly just not good and the mixed vegetables nothing more than lots and lots and lots of green beans. Too much green beans in fact. The Fish and Chips we tried was pretty good, but maybe not good enough to bring us back.

We will continue to try new restaurants in the area over the next few months and will blog on them as we get another batch. 

Realty Income

We backed off trading and owning Realty Income shares earlier this year due to the high valuation and began the look for stocks in the triple net leasing business to replace symbol O.  In the meantime we decided that the monthly dividend and the push into dividend stocks by investors looking for yield lessened the risk of a sell off in O.  So about two months ago we went back in with option positions and figured the monthly dividend made the shares acceptable. 

Since then O has done about what we expected and traded pretty much just above the $40 price level with a 4.5% or so dividend. Since O continually raises it's payout on a quarterly basis as long as the shares stayed around that price the valuation premium continued to lessen. We continue to hold options in the stock and get nice cash flow. 

In our quest to find an acceptable alternative to O we came upon a nice small cap stock, symbol ARCT.  We frankly really liked the stock, like the comparable monthly dividend, and very much liked the high grade real estate assets of ARCT.   The problem was that as we are mainly traders, ARCT had few option opportunities and when they were present the bid and ask were unreasonably expensive due to the light trading volume so we moved on just appreciating the value in ARCT. 

Last week Realty Income, symbol O, announced the purchase of the entire ARCT stock and company and frankly we are not surprised.  Not only do we consider this a good value for O, but likely a good merger for ARCT assets.  In fact the merger is immediately accretive to O profits of around 22 cents per share annually and O has said they will add 13 cents to the annual payout.  Yes, there are concerns about the merged assets since this is Realty Income's first real move into real estate such as ARCT owns, but we believe O's management is up to the task and we now like Realty Income even more. 

              

 

Unexplained stock price movement in LO and EXC.

Two days and two stocks were we have positions and movement unexplained.  Well maybe not. 

EXC, which we have posted on twice in the last week and suggested investment has done nothing but go down for two days.  The price has settled just in under $35 now.  That makes it now a 6% yield at this price. Even if it goes down more you get a nice dependable payout and safe company that is not going away or going bankrupt. As long as the lights must be on in the midwest EXC will be the one to sell them the power to make the switch work.  As to the stock price weakness there seems to be concern about just what will be the final annual profit per share of EXC once this merger is integrated fully.  Even if the low estimate of $2.25 actually happens it still covers the $2.10 dividend and this will be the bottom feeder year for this stock and company.  There is also the piling on effect happening as broker after broker downgrades the stock to make sure they cover their behinds when the weaker earnings are reported.  As Cramer says it is time to back up the truck.  The time will come for capital gains. 

LO , Lorillard a tobacco producer, is another stock we actually own as a long that has had serious weakness in the last couple of days. Today's drop off of over $5 per share follows and almost $3 per share yesterday.  This frankly is huge movement for what is considered a consumer stock that rarely moves much on a daily basis.  Look as we may we can find no reason for this move from the company, message boards, or analysts.   LO is down over $25 per share in short order.  Yes, they had a small miss on their latest earnings report, but that should not cause this kind of movement.  There are rumors that insiders have got info from the Obama administration that a ban on menthol is days away from being announced. Frankly we doubt that, but we have been fooled in the past by comments or policy from this crazy administration.  If Obama is so confident he can tell blacks, who are heavy users of menthol cigs, to go to hell to appease his liberal wing then indeed things are getting desperate in the White House. So who knows. 

The next few days will be interesting to see where these stocks move and if the movement is as strong as the past couple of days.  We are certainly feeling the pain from our positions in them and are seeing visions of the first half of 2012 when we got killed from positions in GG and ERF.  2012 has not been a kind year thus far.