Two situations where regular people have got screwed in the market.

The last two days present two reasons why regular people do not trust the stock market and traders such as myself just want to throw up your hands and get out completely.   What makes this more aggravating is that what I am about to point out does not involve the one thing that irritates me most of all and that is insider trading where people in the early know trade on the news.  That is totally illegal but goes on all the time. 

Yesterday Goldman Sachs issued a report on JC Penney saying there are two scenarios where the company goes bankrupt.  Today Goldman Sachs follows up with a downgrade of the stock to $7 per share.  Now this is all well and good if Goldman actually thinks these two reports to be true. 

 However the one thing Goldman did not mention is that they have a vested interest now in JC Penney failing and falling hard.  Goldman has loaned JCP a couple of billion dollars of much needed cash to keep the concern going through the critical fourth quarter period.  Yes one would say why would a bank that loaned serious money to a business want it to turn around and fail?  Well Goldman has secured that loan with JC Penney real estate.  Real estate in nice retail locations.  Retail locations that right now is most valuable due to the tightness of that market. 

 If JC Penney fails and falls hard that real estate will be taken over by Goldman at lower prices which Goldman can then resell for tidy profits.  So Goldman's downgrades are self serving.   The worst part here is all this is legal, but it is not ethical.  If someone has money in JCP then you are taking some losses in the holding.  Add in that big chunks of JC Penney retirement and pension assets are in JCP stock as well.  Why does Goldman get away with this without SEC oversight and why does Goldman not get some news coverage for what they might be doing to JC Penney employee retirement assets? Goldman is Democrat heavy in it's leanings and political contributions. 

Second situation involves JP Morgan.  JP Morgan is a fine bank.  In fact JPM as said by Warren Buffet is run by the best banker in the country Jamie Dimon.  Jamie Dimon steered JPM through the financial crisis and post crisis without any real need for bailout funds and continuing profits.  He took care of shareholders and bank deposit holders as well.  Mr. Dimon has an well formed ego, but we expect that is certainly well deserved due to his fine management.  

During the 2008 election cycle Democrat Jamie Dimon supported and gave money to the Obama campaign.  He supported Obama during most of his first term.  However Mr. Dimon before the 2012 election had the audacity to say some negative things about Obama's policies and how they were effecting his shareholders and customers.  Obama who does not like that kind of talk has turned the US Justice Dept. dogs on Mr. Dimon and his bank with lawsuit after lawsuit which in turn has lowered the bank's stock price and cost the bank billions in legal fees.  Shareholders are taking a hit and frankly it has reached the point fair trading in the stock is hard to find.  Everyday there seems to be some new lawsuit and people trading in the stock on the news.  There is nothing illegal about all this of course, but it certainly is not ethical on the government's part in picking winners and losers when the losers are regular people, employees, shareholders, and customers of JPM.

Update on Some Prior Stock Picks.

Some other stocks that we follow and trade with some updated comments on each. We currently have positions in all of them expect SO. 

BP...We have had this stock in our trading portfolio almost all of 2013.  We believe most of the downward bias in this company is now priced in the stock.  With a PE of around 5 it is hard to see it drop lower.  The press has moved on to other issues and BP has been using the lack of press coverage to fight back against some dubious claims on the trust fund.  BP has also used the time to realign their asset base and redefine their business to higher growth prospects.  There is also the continuing rumors of a takeover by Exxon or another big oil company supporting the shares.  We like here around $40. 

CTL... Centurylink has frankly got us concerned.  The company remains a viable long term business and has slowly moved their assets to higher growth areas and away from legacy line wire business. However the change over has slowed and the missteps by management this year have been a concern. The stock has responded by moving downward all year.  We still believe the dividend is safe at this lower rate and the company will soon switch over to reporting profits as their carry forward losses dwindle.  We would be careful here in buying shares and if own them might lighten up a bit.  We continue to consider dropping it from our trading portfolio is weakness persists.  We like it close to $30

LO...Lorillard continues to prosper selling cigarettes and is in the forefront of the new e-cig business.  The dividend is safe, but the company is not safe from Obama.  Once the 2014 elections are over there is the risk Obama will lower the hammer down and try to ban menthol cigarettes.  No longer needing the black votes who generally smoke the most menthols he can let lose the regulations. So there is danger here, but the risk is mitigated by the high payout.  We prefer it closer to $40. 

JCP...Will Penneys survive?  Who knows?  It has a cash reserve courtesy of Goldman Sachs, but the cash is secured with some of the valuable real estate.  We see little of no growth for Penneys going forward, but we personally see the company surviving. The product mix and the positioning of lower middle class makes for a sweet spot of retail.  They have decent shopping experience stores and lots of merchandise.  Add in we are going into the best season for the company to make up some lost ground.  We have a significant position and might add more.  Our position is at $10, but one could buy it around $12 and be well positioned. 

SHLD...If you want a wild ride try Sears Holdings. Under $30 one month to over $60 the next month. This stock is for the brave and nimble trader.  We like it under $40, but with enough room will trade it higher.  The real estate is unencumbered by debt and the management , be it not smart retailing wise, is smart money wise.  Sooner of later Eddie Lampert will make a move and I want to be here when he does do so. 

HFC... We continue to like the refiners here as long as Obama does not allow a pipeline from Canada.  Higher prices for refined gas from lower priced crude makes refiners a sweet spot here and none other than Warren Buffett see it too.  We like HFC due to being the lowest PE of the group and sitting on top of the West Texas oil boom.  Nice dividend and solid capital gain prospects. But close to $40. 

AFL...We continue to like the duck.  Good safe dividend.  But what we really like is the low PE where we believe the stock to be under priced.  Any buy below $60 should get one in good for some long term capital gains. 

SO...This former super safe stock remains on our watch list and frankly here at $40 or so the bad news might be baked in, but with Obama's EPA you never know.  If it dips below $40 we might dive in since the price will become most compelling for a regulated utility and one in a good regulatory area when it comes to state government issues.  After all these EPA mandates are eventually paid by ratepayers and not the company. 

            

In Search of Safe Dividends

Yield is something retirees, savers, and anyone looking to get their money to work for them seeks.  Current US Treasuries pay about 2.75% and they are fully taxable by the Federal Government, so your final yield could be as low as 1.5% or so.  Not much and certainly will not keep up with inflation. So where does one go for yield, or more specifically safe yield.  Quality dividend paying stock are our choice.  Some over or close to 5% yields, well covered by cash flow, and a favorable preferred federal tax rate. 

In the past most would reach for the nearest electric power utility, which is almost guaranteed to stay in business, hold the current dividend, and raise it a bit each year or so.   Frankly electric utilities now are no longer safe.  In fact one that I found to be very safe Southern Company, symbol SO, now concerns me a good bit. Southern has been forced into the carbon capture business by the EPA due to their dependence on coal fired generating plants and the cost overruns, the large increases in rates to consumers, and the ever increasing regulatory hand of the federal government have made this stock's dividend suspect.  One can now say that about almost any utility, Duke Power being a local one that now is getting eaten up with costs from their own clean energy projects. 

So again this leaves one asking where are good alternatives now. Below we will list several we believe to be quality companies with safe and sometimes increasing dividends for the next five years or so.  Understand with the current administration in Washington DC there are no completely safe alternatives as any day Obama could wake up and decide today is the day to regulate this industry into submission. 

BCE...A 5% plus dividend in Canada where this telecom is safe from the over regulation in the US. The recent huge buy out of Verizon Wireless by Verizon will keep that company from moving any assets in to Canada and that pushed up these shares about 5% recently. The closer to $40 per share you can buy it the better. 

JPM...Despite the recent fees and fine this company has had to pay it is still the premier banking franchise in the US and has plenty of profits and cash flow going forward to do well and pay dividends.  Once the Obama administration is gone you can expect this stock to soar and payouts to increase significantly.  Just at 3% yield.  Try to buy it around $50 or just above. 

O...Realty Income might be the safest dividend in the country now.  Yield is above 5% and is regularly increased and is paid monthly.  Realty Income has long term triple net lease rents that are secured by long term retail businesses.  Add in that the recent low borrowing rates have been a bonanza for this company that has restructured a good bit of their long term debt at cheap rates. Buy under $40

T...AT&T will be one of the two remaining wireless telecom assets in the US soon.  They have significant cash flow, low borrowing costs, and a dividend well covered by profits.  At 5% plus this is a sleep well at night payout.  I like the stock at around $33 per share. 

VZ...Verizon having finally made the deal to consolidate their wireless assets in the US should prosper going forward.  The best network added to low borrowing rates and huge cash flow protects your dividend.  VZ now around 4.5% yield is another sleep well at night payout.  Buy at around $45. 

We have positions in all these stocks. 

Greatest Transfer of Wealth in History.

As we wrote back in the April of 2012 in "Re-electing Obama means No Debt left behind" the economic policies of Barack Obama are the greatest transfer of wealth in history.  (If you have not read our humorous take on this economy go take a read.)  Despite what you read in the Agenda Press, hear politicians say, or think, the current economic policies take from the middle class and poor and pass on to the wealthy in this country.  The media in this country filled with economic illiterates do not grasp this fact and their religious support of the first black President blinds them to the obvious.  The current President being a narcissistic fool can not see it as well.  The worst part is that the people whose money is being transferred FROM do not see it and think all is well. 

But trust me the people who are getting the wealth transferred TO them see it very clearly. They see it in their stock portfolios going up and up.  They see it in the huge transfers of money from the less well off taxpayers to them. They see it in the low interest rates allowing them to buy lots of houses, cars, and other consumer items at dirt cheap rates and putting off paying for the items for many years in the future.  Frankly maybe NEVER paying for them because Obama's economic ponzi scheme allows them to buy the items, use them now, pay for them with cheap money, and then abandon the debt by simply walking away from the bills since Obama just picks it up and adds the debt to the national debt load. He does this by bailing out banks, automobile manufacturers, and transfers of wealth using taxpayer money. 

We know this ourselves as we have been on a buying spree the last couple of years knowing the party will not last forever and why not enjoy since we will be passing on the troubles and debts to others after we are pushing up daisies.  This money we are spending is funny money in that it does not exist in real terms.  It exists on the balance sheet of the Federal Reserve, which is printing the stuff as future promises of payment for someone else to pay.  It is financed by the fact that our fathers and mothers worked hard and built a solid financial future for their children by making sacrifices and making the dollar strong and the world currency.  If you think the young people of the US will be mad when they see greatly reduced lifestyles in a couple of decades, imagine how furious China and other countries who are buying this debt will be when they find out they are holding debts and currency worth much less than the current value.  Makes one wonder why they are buying this debt?  We are thankful we will not be here to feel their wrath when the debt they are holding is found to be worthless. 

Adding to this huge transfer of wealth is the entitlement state we live in where WHITE seniors are getting huge sums of Social Security and Medicare paid for by the young people in this country who are more black and hispanic who will never see a dime of it returned when they are seniors.  Again Obama and Bernanke have not only fashioned these economic policies they have put them on steroids.  All this reminds me of the bumper sticker that says we are our spending our children's inheritance.  The sad part is we are spending our children's future earnings as well. 

So we continue this game playing of silly politics, having clueless media types, and allowing the middle class and poor to sink deeper and deeper into debt.  The Obama spending spree is made possible with the help of a compliant Federal Reserve and the beat goes on.  When given a chance to START reversing these policies yesterday the Federal Reserve said no.  Heck even Obama stated yesterday that raising the national debt is not adding to the debt.  Talk about economic illiterates? 

We are sad to watch this debacle unfold, but seem powerless to do anything about it other than to keep screaming STOP.  Seriously you young folks elected Obama because he was "cool" like an American Idol contestant.  

               

Success is the Sweetest Revenge....Yes, I did build that.

Five years ago this past week I took a very special work commute into Downtown Raleigh.  After a nice lunch provided by my co-workers at The Brass Grill, my favorite downtown lunch place,  I took off early for the drive home and along the way contemplated just what the next few years would bring in a way I had never done before this commute home.  You see I had reached that point in my life where as my former colleague Jack Andrews once named it I had "go to hell" money.  That is enough to tell your boss to go to hell and get away with saying it.  To be honest I really did not want to retire early, but the situation at work lead to the decision and the fact I had prepared for just such a situation offered some pleasure.  What I did not know at the time that within the next month the bottom would fall out of the stock market and I would lose about one quarter of of my retirement portfolio value the next 90 days. Retirement out five years has been a interesting journey and this posting is my "Michael Jordan moment" in that like his comments at his induction into the Basketball Hall of Fame he got a few things off his mind, here is some final bridge burning on my part too. 

Ok, Warren Buffet I am not, neither am I Barack Hussein Obama, but I am blessed to be much closer in life accomplishments, learned skill sets, and certainly humility to Mr. Buffett than Mr. Obama and for that I remain eternally grateful. Yes, I did build that contrary to what our unaccomplished President current says.  Take your passion and make it happen. 

People who knew me back when I was employed by newspapers can tell you I was one competitive person.   Loss was something I did not deal with well and I tended to be a bitter loser. That was not an enduring trait and as I have grown older some of that attitude has faded into accepting some outcomes as they come. I still want to make times, people, and events, bend to my approach, but now know sometimes these situations are hills you do not want to die on. In the past I considered every hill worth dying for.  Frankly I should have seen this sooner as one of my former employees had a saying about me that was not favorable, even though I thought it favorable at the time. 

What I am getting at here is something that dawned on me since I retired.  Real success comes in the form of retiring early and simply trading additional income and wealth for free time when I am younger to enjoy it.  Frankly many people would like to do this, but few can at my age of less than 65 years old or even older with the assurance of future income, I did it at 55 years of age. Savings and investments are important, but maybe even more so is using one's time to learn new skills that can be used to add income once retired.  If you read my blog you know I am a options trader which is a skill I learned part time over many years.  That skill has offered me the opportunity to make money sitting at home at a computer as a hobby so to speak. 

I worked in newspaper advertising for over three decades and frankly was overlooked, under appreciated, and not promoted to higher levels for many reasons.  Certainly my stubborn nature and willingness to take positions that were not acceptable to upper management hurt.  I am also very aware that my flat out refusal to violate my own value system of honestly, integrity, and most often stand for customer value got in the way. Those stands are known in the corporate business as "he is not a team player."  In the last decade the then and now PC idea of diversity hiring cost me at least two promotions. So needless to say I was not a happy camper went I left and retired due to diversity hiring practices. Add to that no one who I worked for ever knew I was what would be called in today vernacular "a special needs child".  Yes I have a significant disability, but my parents never allowed me to use it as an excuse for not succeeding.  Whining by others who thought they were treated unfairly due to their "diversity" did not sit well with me due to that fact. 

 Many of those people who would not consider advancing my career, many of those who got promoted before me due to diversity, and many of those who thought I was just "not a team player" are now still working in an industry that is fast in free fall. Many have lost their jobs and had to find employment elsewhere outside there expertise. They work a worried existence in their positions due to possible layoffs and downsizing and many have at least another decade of this miserable work life.  

I consider this next point one of the most important lessons to learn in life...... "Success is not what you have or what you have achieved in life, success is what you did with what you were given in life.".... Elites and people who have been given much by inheritance or just plain luck and not improved their lot have accomplished little other than to enjoy their life at the expense of others on the back of someone else's prior success. Warren Buffet describes that as inherited lifetime welfare.  There was a time early in my working life when I did not, as they say in the south, "have a pot to piss in".  

The best part is that I am fully retired now for five years. Financially better off than when I retired and  that given the financial mess that occurred in late 2008 .  Add in that now my experience and expertise on newspapers and management are now sought by others in the industry.    Maybe I am the one who actually got the better deal by being forced by the non-promotions and my willingness to stand my ground on standards to find other ways to succeed.  My father who cautioned me time and again to be patient and good things would happen was right. In the end "Success" in being to retire early and well might be the sweetest revenge.  Not that I was necessarily seeking "revenge". 

Personal success is something I did build and no government had anything to do with that.   The freedoms and liberties God gave me and secured by a constitution so far made that possible.  Today I fight for my children, their children and your children to have the same opportunities via liberty passed on to those generations. Here is another lesson I have learned as well... Being able to find values and goals bigger than one's self  are also a late in life sign of success and the last calling of a liberty loving patriot.

             

 

Is Congresswoman Renee Ellmers a RINO?

I spent time this week to watch the entire 2 hours and 26 minutes of an online video of a Pinehurst town hall meeting Congresswoman Renee Ellmers had on Sept. 3.  I did this because two conservative websites I read regularly Daily Haymaker and Carolina Ploutt Hound posted the video suggesting Cong. Ellmers had stumbled badly at the town hall answering questions and defending her positions.  Add in that repeatedly over the last few months I have seen numerous Facebook posts regarding Cong. Ellmers now being nothing more than a RINO.  Frankly it had become time for me to dig past the headlines and do my own research and the town hall video would be a good place to find out.  

I have a vested interest in this situation even though Cong. Ellmers no longer represents me in Congress.  The NC Legislature moved my home county into the Seventh District from her Second District last year. However I was one of the seemingly few but tireless workers who spent a good portion of the middle calendar period of 2010 helping to get the then Ms. Ellmers elected to Congress. Campaign funds were short but we found a way to get it done.  Many of you made comments to me that she had no chance against Bob Etheridge and even if she did pull it out Ms. Ellmers was not up to the task of being a Congresswoman.  I rejected those ideas then since I took the time to get to know Ms. Ellmers and her staff and see if she would represent my views if elected.  I am still proud to say I was the very first person to donate, in the maximum amount allowed at the time,  to Cong. Ellmers campaign when she was officially declared the Republican candidate that year.  

Watching those two hours plus of town hall video what I saw was a still passionate conservative Congresswoman.  Ms. Ellmers stood up to intense questioning, made good points regarding her positions, and kept her cool when others might not have done so in the same circumstances.  Most of the disagreement at the meeting with Cong. Ellmers was around her decision to not support a continuing resolution that included a section that most in the audience believe would defund Obamacare. 

I agree with comments Cong. Ellmers made at this meeting that this vote will not defund Obamacare and furthermore as she stated it could hurt us in the 2014 Fall elections.   I will add one more point here in that pushing this "defunding" vote could very well make sure Obamacare is law forever.  Yes, I know this will make many of you readers decide that I am now a RINO and I reject that point completely.  If you follow my Facebook posts you know I am not shrinking violet when it comes to my opposition to this terrible piece of legislation.  I see it as the last nail in the coffin of liberty in this country and want to be rid of it. Personally I am expecting to take a $8000 hit from it next year due to higher health insurance prices and not having a HSA contribution either.  So efforts to paint me as  weak on wanting to get rid of Obamacare are nonsense. 

The continuing resolution I am referring to takes the place of the BUDGET that we no longer do for the Federal Government since Obama arrived and the US Senate got took over by the Democrats. The continuing resolution, or the budget, directs the President how to spend money that comes in each day.  If there is no continuing resolution or budget the money still comes in from taxes and Obama can direct it basically anywhere he wants it to go within the government.  Note that he has been doing some of that already, simply lawlessness there. The legislative branch makes law the executive branch executes the law or at least is suppose to.  

The other option some conservatives believe will defund Obamacare is to not pass an extension of the debt ceiling.  Let's look at that one.  The only thing that occurs there is the Federal Government can no longer borrow the extra money it needs to function.  So whatever tax money flows in Obama gets to direct the flow and you can bet Obama will make sure the pain is where it hurts the worse like holding off on Social Security, Veterans benefits etc. and you can add in that people will scream and the media will cover the screaming making Republicans to be dogs.  

Even if we pass a resolution in the US House without Obamacare funding let's note two items.  One, you can be sure the US Senate under Reid will not take it up to protect his vulnerable Democrat Senators for 2014 and even if gets past the US Senate and hits the Presidents desk by some miracle he would veto it and again blame the Republicans which will be echoed loud and clear by the compliant Agenda Press.   

Lastly one item most people ignore and I think, not sure but think, Cong. Ellmers touched on in this video is that the Democrats and Pelosi were smart when passing Obamacare they made the agency like the EPA sorta quasi-governmental in that it gets its direction and funding from other sources  that flows directly to that agency.  Hence all those Obamacare taxes we know about. So even if we defunded Obamacare via continuing resolution most of the guts of the agency would still operate and you can be sure Obama will make sure of that happening. The only way to rid ourselves of this law is to gain the US Senate in 2014 and the President office in 2016 and repeal the whole law which is possible via reconciliation since it was originally passed that way.  If we do not win both these elections and keep the US House this law is in place FOREVER because most people will get comfortable with all those subsidies and taxes flowing into the treasury.   Elections have consequences and these next two are whoppers.

We Republicans and conservatives need to find a way to disagree on some points or this country has no future. Asking our Republican representatives to completely agree with us every time, be pure in thought and speech, is something that is liberal PC.  We all are liberty loving Americans and part of liberty is not agreeing with each other.  Frankly I disagree more with Senator Burr on some of his votes , but I also understand the environment he is in election wise and that he represents all this state.  With both Cong. Ellmers and Sen. Burr the only way we conservatives will have any influence in legislation is have them and not another Democrat in their place.  Zero tolerance thinking is what lead us to get in this position in the first place with many sitting out the 2012 election and not voting for Romney who I also know would have signed a repeal of Obamacare if it hit his desk. 

 I am completely convinced Cong. Ellmers is passionately opposed to this law and would vote for it's repeal if give the chance.  The US House has done just that many times in the past two years and every time except one the US Senate has declared the bill dead on arrival.  Who thinks this will not happen this time as well. 

Take a look at the current race for Virginia Governor and you will see Terry Mcauliffe moving up in the polls and there are few more ethically challenged people in politics than Mr. Mcauliffe.   He is beating a fine conservative in Ken Cuccinelli, who is one of those zero tolerance conservatives.  Voters are rejecting those type of conservatives now and we conservatives if we are ever going to have a chance to get rid of Obamacare better understand that dynamic.   Imagine a Hillary Clinton as President, a US House and US Senate Democratically held and think about Immigration legislation and a couple more US Supreme Court appointments by her and you have a complete loss of liberty.  

This game of politics is not ramming our ideas down other people's throats it is persuading others to why our policies are the right ones.  We either win back the electorate and win elections or we are stuck with Obamacare forever. 

             

Lesson in a Short Squeeze

A lesson in owning stocks, or most importantly a short in a stock, is being played out as I write here.  Sears Holdings which many traders believe have no future but a stock value that has one way to go and that is down is being short squeezed today.  Here is how it is playing out from what I can tell.  Sears reported weak earnings a few weeks ago and has been selling down lately.  Traders thinking selling the stock short, meaning they borrow shares to sell now with the intent to buy it back later at a lower price thus making a profits, have been doing just that.  Enter Eddie Lampert who runs a hedge fund with lots of Sears Holdings shares.  His hedge fund has liquidated numerous positions of late taking profits and looks to be deploying those assets into Sears shares pushing the price up.  That pressure is intense since he has lots of cash to deploy.  For the short sellers they now are getting caught in the squeeze of a stock they sold to go down now going up quickly.  Sears selling in the $38 range shortly is today selling over $56 and the shorts are getting killed.  They in turn to cut their losses are now buying back shares to cut their losses and that action as well is pushing prices higher. The lesson is be darn careful when you are a trader and playing the dangerous short selling game.  

We currently own 2400 puts in SHLD at $37.00.  Yes, we are most happy with the short squeeze here. 

Puerto Rico Bonds.

Most people are not familiar with US territorial bonds.  The largest issuers being The Virgin Islands, Guam, and Puerto Rico.  We currently own two of these issuers, Guam and Puerto Rico.  We reasoned that Guam being out in the Pacific owning airport bonds seemed like a no brainer safety wise as how else could someone make a timely trip to the island as needed.  We also like airport bonds in general as this is a business that is not going away and airport authorities can raise ticket prices as much as needed to pay for bonds. We also own Puerto Rico bonds as well since the island nation has significant advantages of being close to the US mainland and also significant advantages when it comes to trading and manufacturing offshore for US firms.  Frankly the only reason we do not own any Virgin Island bonds is that we have yet to have the opportunity to buy issues. 

The most important point about any of three territorial bond offerings is that all are triple tax free.  Absolutely no income taxes for anyone living in any state in the US to pay.  That makes these bonds attractive for many people in high tax states.  It also make these bonds attractive for many municipal bonds funds.  Lots to like there in that there is high ownership, high trading capacity, and one gets to keep the entire interest payment. 

In the last decade Puerto Rico has been in a serious recession. There has been some political turnover and some unease in the bond market from both of these events.  There is also the fear that Puerto Rico will be the next Detroit since unlike US states there is concern of some type of bankruptcy.  We do not see bankruptcy as a possibility.  The US Government basically guarantees much of Puerto Rico debt since it is a territory and being a sovereign entity the island can raise taxes to cover whatever principal and interest needed to be paid.  The current government has said they stand fully behind their bonds and will do whatever is necessary just to back that point up.  Is there risk, yes there is some, but in our opinion not enough to go out and dump our currently owned bonds.  In fact we are going to be searching for some buys ourselves here. We believe there is plenty of safety and we also believe there is lots of opportunity as well since the market has sold off a number of the Puerto Rico bond issues in the last year. 

Almost all Puerto Rico issues are rated BBB, which is investment grade.  One can buy Puerto Rico General Obligation bonds as low as 65 cents on the dollar right now. Even power agency bonds can be had for 75 cents on the dollar.  Looking at the GO's at 65 cents on the dollar with an interest rate of 6.0% one is looking at 9.25% on the invested dollar.  Let's add in a 30% combined state and federal tax rate and one is earning 12% plus on the bond.  With the slight risk involved and the opportunity for capital gains when the Puerto Rico economy regains it's footing this might be one of your best chances for serious returns over the next 5 years out there right now. 

As with all municipal bonds I would suggest one buy individual bonds and not bond funds since buying bonds yourself offers the opportunity to hold onto them until maturity and earn both the capital gain and interest.  Like buying a stock for the same reason. 

Adding Three Stocks to the Trading Portfolio

As prices have declined recently some stocks have begun to move into our target zone.   We will be hesitant about adding them at this point, but the lower prices allow us to find some trading floor to play with going forward.  Again strike prices we offer here are trading prices, but they also offer good long term entry points. 

Phillip Morris...We LOVE Phillip Morris.  Fabulous cash flow in a non-judicious environment makes for serious value when the price reaches a certain point.  Our strike price of $80 is $16 off their 52 week high.  Dividend is close to 4.5%. 

Coca Cola...This company had a bad quarter and is seeing some sell off in this long term growth stock.  Did you know that about 40% of their sales are juice drinks?  KO has transitioned nicely to more health related beverages and I really like their steady eddie dividend at almost 3% and a strike price of $35. 

VZ...The impending buy of the remaining 45% of the Verizon Wireless unit from Vodafone is a good buy in our opinion.  With low interest rates now was the time to strike, despite what most believe to be a higher price than needed.  However the huge cash flow is now all Verizon's and one can expect it to be put to work buying back shares and raising dividends, which they just did for the dividend.  Strike price $42 would get you in at 5% payout which is rock solid. 

 

Adding Three Stocks to the Trading Portfolio

As prices have declined recently some stocks have begun to move into our target zone.   We will be hesitant about adding them at this point, but the lower prices allow us to find some trading floor to play with going forward.  Again strike prices we offer here are trading prices, but they also offer good long term entry points. 

Phillip Morris...We LOVE Phillip Morris.  Fabulous cash flow in a non-judicious environment makes for serious value when the price reaches a certain point.  Our strike price of $80 is $16 off their 52 week high.  Dividend is close to 4.5%. 

Coca Cola...This company had a bad quarter and is seeing some sell off in this long term growth stock.  Did you know that about 40% of their sales are juice drinks?  KO has transitioned nicely to more health related beverages and I really like their steady eddie dividend at almost 3% and a strike price of $35. 

VZ...The impending buy of the remaining 45% of the Verizon Wireless unit from Vodafone is a good buy in our opinion.  With low interest rates now was the time to strike, despite what most believe to be a higher price than needed.  However the huge cash flow is now all Verizon's and one can expect it to be put to work buying back shares and raising dividends, which they just did for the dividend.  Strike price $42 would get you in at 5% payout which is rock solid. 

 

Sell more to more people.

If you like ice cream we expect you have taken advantage of the large number of ice cream outlets that serve Hershey's Ice Cream.  (Note here that Hershey's Ice Cream has no association with the candy bar company in case you did not know. Both are different companies and both successful operations.) We know in my area there once were at least four or five places that serve the large number of flavors Hershey's offers.  

The high quality product and large selection is the hook that keeps people coming back for more.  Hershey's some years ago decided to make a move to sell more of their ice cream parlor product and some smart person in their marketing department came upon a way to do so. The approach was to offer places like convenience stores, small mom and pop restaurants, and other small operators a great deal. That deal was if they would buy ice cream exclusively from Hershey's and sell a certain number of the selections Hershey's would in turn provide the coolers for the products.  Made good sense since once the coolers were bought in large numbers the price would come down and the local operator would pay for maintenance and power costs.  Hershey's would sell lots more ice cream and would gain more outlets in which to do so since the upfit costs for the local sellers was next to nothing. 

However things are changing in the Hershey's ice cream outlets.  We caught wind of this change about 4 months ago when a Hershey's ice cream operator at the beach where we frequent told us that they would have to reconsider their Hershey's deal.  The reason was quite simple Hershey's was no longer going to offer free coolers and would charge for those in use now.  This of course hurts smaller operators and sure enough we are already seeing some Hershey's operators switch over to Blue Bell.  Now we do not know if Blue Bell is offering a deal, but they must have a cheaper arrangement. 

The point here is that Hershey's management has broken a rule we took to heart back many years ago.  Simply put the best business, the most profitable business is one that sell more products to more people.  Not more profitable but less products to less people.  It stands to reason if you have a better price and better deal or deals you will sell more as I can absolutely assure you that the masses will find your place and product.  Yes one might think that if they raise their price and get more profit per sale that profits will go up, but the short lived bump will fall when your competitors take advantage of the situation.  Maximum profit occurs when a business sells the most product it can in market at the lowest price. 

The optimum market situation is selling as much of your products or products to the most people at the lowest possible price and maximize profits by the larger number of sales.  This in effect keeps your competition at bay and allows you to own your market.  All businesses large and small are for the most part in process of proving this concept.  It is a concept that only smart management obeys.  It is a business sin that should be avoided at all costs. This rule has been known for decades, but for some reason business managements tend to not resist the short lived sweetness of seemingly higher profit.  

Look no further than Walmart to see how this rule works and how it can max out your profits if you adhere to the rule.  Walmart for years has decided that with the items they sell they will be the low cost provider and they squeeze suppliers and their own operation to do so.  They refuse to be undersold and as anyone can see they  are the largest retailer in the entire world.  Toyota is another practitioner that been smart about maxing out sales even when the Yen was highly valued which hurt North American sales. Toyota adjusted prices to keep market share and today still owns the auto market worldwide. 

Of course there are business managements that have partaken in this foolishness.  Newspaper management of which I am highly familiar are one of the worst.  For years newspapers owned their markets for news and associated advertising products.  Classified advertising, small consumer ads, were one of newspapers profit centers.  Lots of customers and lots of readers for those small ads.  Publishers decided to raise prices to get more profits, at least what they thought was more profits.  What they got was less ads and less readers when competitors undercut them on prices thus ended their supposed monopoly.  One can find businesses in every town in process of either proving this rule and dying due to ignoring this rule. 

As we began we noted Hershey's management looks to be the latest practitioner of this foolishness and we will all watch this play out over time.  If you own a business please resist partaking in this short lived business destroying activity.