Town of Smithfield...Is this change?

Maybe I should have seen this coming when over 100 people showed up in late October at Town Hall for a candidate forum about the future of town government. I have been living here for almost 20 years and have been to several of these forums and normally you could not scare up 10 people. The interest shown at the forum via audience response to questions was just as interesting. I distinctly remember when one candidate mentioned that if they were to put together a citizens panel for help in hiring the new town manager the panel needed to include "qualified" citizens. Many citizens at the forum made groan noises that let me to believe they were listening to every word that evening and did not like that particular wording or answer.  In the end almost 1000 citizens in Smithfield turned out to vote, which is a low turnout for the eligible voters, but almost 50% higher than normal for a municipal election.

 

 I think it is of note that the three candidates, for whatever reason, who were not at the forum finished as the bottom three in the eight candidate field. Also take this as you will but two candidates that had prior ties to town employment did not win either.  I believe and others do too that past associations by town board members with town departments has lead to some problems and obviously voters considered that as well. 

 

So we now have two new members of the Smithfield Town Council.  Mr. Ashley during the forum and campaigning displayed a sense of understanding that something had to changed about town government and I believe his ideas and his responsible take on the situation rewarded him with the highest vote count.  Mr. Williams is another newcomer and voiced a concern about the priorities of town government going astray and likely got help in being elected due to the closing of a pool in town.  Certainly town priorities need to be reconsidered.  Current town council member Andy Moore had the second highest vote total and was the only one returned to council.  Mr. Moore campaigned vigorously as a reformer and assured citizens he saw the problems with town government and wanted to be a part of a solution.

 

One of the first tasks the new council will have is hiring a new town manager. Kudos to the council for holding off on this hire until a new council comes aboard. This single hire will likely be the most important item on the agenda for the next two years and needs to be made wisely.  When the town council solicited suggestions for the hiring of the new town manager the few public comments from citizens began and ended with we need a town manager who is not a government professional.  The comment from one town management person was we do not need to run the town like a business so we need to be careful about NOT hiring a government professional. 

 

The problem in my opinion for town management lies in the fact the town HAS been run like a business, a shortsighted one,  for too long.  I think has been a belief in town management circles that tax money is to be acquired by whatever means and purposed for town government interests with little concern about taxpayer interests.   Former town manager Pete Connet and I got into it one day in his office over this very concept. I was pointing out that Booker Dairy Plantation building requirements needed to be improved and he pointed out the town planners had done their required duty. I responded with their duty was to make the developer pay for needed improvements to infrastructure. Those included better drainage on the main road, Booker Dairy, and the roads actually in the subdivision.  Applying already existing building codes so as to make future home owners and most importantly town taxpayers not have to pay for problems later on.

The real point of contention was that I had opined that town management was only interested in additional tax receipts from the additional tax base from the new homes to be built in the subdivision with no consideration of future expenses or problems. Now that my readers is the way business, short sighted business,  does things. Not to blame Mr.Connet, I expect the town council at that time was pushing him for additional revenue and yes, he was a government professional. If you have doubts in this approach take a drive down Venture Drive or how about a ride into the roads in Booker Dairy Plantation. We the taxpayer already are and will be paying for doing business like a short sighted business on these roads.

 

Town management should be to GOVERN the town by applying good regulations, good planning, and good employee management for the citizens of the town who elected a town council and gave them authority to hire a town manager. The town government should not be hunting down tax revenue for the implied purpose of continuation of government as is at current levels. They should be making good policy that makes Smithfield a desirable place to live and do business. The past approach has not been that and is showing such with the problems we observed in the last few years. Town employees deserve no less than solid fair management of employees and backup of good rule enforcement.  Good government IS business friendly which means lower tax rates and quality government services when needed. I do mean NEEDED not desired by town government interests. Believe it or not good government can and should decide something they have funded in the past is no longer appropriate going forward no matter how much town bureaucracy believes it must do so. 

 

Good management is not waiting until the traffic mess we now have at Industrial Park Drive gets that way.  Frankly I have my doubts that the current plans there will help, but we will see. Good management is not allowing the few dictate not straightening out Third Street in preparation of the old Market Street bridge demolition and taking the freeNCDOT offer to make traffic flow better for all citizens in town. Good management is saying no to departmental interests involving the building of SRAC, when the voters turned down the bond for the building in the first place. Good management is the town council stepping up and taking responsibility for the salary and vacation mess and saying so publicly. 

Good management is also when Police Chief Mike Scott did not extend blame to the former city manager for his gasoline budget problems, which frankly would have been correctly placed if he had done so. Instead he said give me some budget authority and I will fix the problem. Good management is hiring the best you can find assigning them authority and letting them do the job. 

Here are some ideas for the new council. 

 

1. Everyone knows that the electric rates in Smithfield and other Electricities towns are much higher than Progress Energy. ( Do not waste my time comparing our rates with Clayton or other towns. )  If you were on the board in the past why did you decline to join with the New Bern and Rocky Mount mayors and others wanting to force a solution via the Duke Energy and Progress Energy merger?  Why not join the New Bern and Rocky Mount mayors now?  Everyone at the forum agreed the movement of funds from electric revenues to the general budget needs to be ended. All also agreed that it needs to be orderly. How about taking a vote on the timeframe of doing this and sticking to it? Make us believe you really mean to stop the transfer.

 

2. Smithfield is not growing, population growth and home building is stagnant to non existent. Most realtors avoid showing homes in the town limits due to the high cost of electricity, property tax load, and perceived problems in town government among other reasons.  How about appointing a select committee to address this issue and come up with some solutions and have them report back to the council?  Maybe include some town employees and local board heads on any committee. I expect some of the issue could be resolved with figuring out how to get young families and retirees to move to Smithfield.  Anyone notice many town employees prefer to live outside town limits?  Even new employee professionals we do draw tend to find other places to live.

 

3. Contrary to what some said at the recent forum outsourcing or privatizing town work is not about ending employment. It is about making tax revenues work efficiently and looking after taxpayers.  Surely some town work can be done more efficiently than currently being done and if offered to be outsourced the private company would have to do it less expensive and with the same quality to get the contract and the current employees would likely get jobs with the company.  However there is another way to accomplish the same goal. How about getting input from current town employees about how to do things more efficiently long term and rewarding such with 10% of the first year savings up to a certain limit.  Management needs to be tasked with how to manage their departments better and not just assume that last year budgets and expenditures was ok. Again a one time reward to managers would give incentive and pay for itself.  Even rewarding managers and employees who do work more efficiently by not filling vacant positions with a pay raise that is part of the cost savings pays off for everyone involved. If there are policies like this  now how about putting some emphasis on them. 

 Through many years of being a manager I learned employees want to be part of making things better and frankly better paid employees who work smarter tend to stick around longer.  Here is where not hiring a government professional would be helpful in having someone who can ask questions regarding how things are done and not that "we have always done them that way".  If I was on the town board I would suggest that the new town manager contract would come with some incentives attached regarding making town government operate more efficiently.  They would pay for themselves. 

 

4. Let's all accept the SRAC debt service is an issue. Yes, it is a nice place, but still expensive.  But it is here so let's deal with it by asking more of the Recreation Dept. that pushed to have it built.  Again tasking the recreation dept. for efficiencies as noted above would be a plus. Plus the Johnston County Tourism Bureau is currently assembling a sports council to help with bringing more sports related tourism to our county and cooperation with that new council will be a step forward in helping with paying for SRAC. (Full disclosure I am the VP on the Tourism Bureau.)

 

5. Maybe current reelected Mayor Evans can consider putting together 5 point or so plan of action that the council desires to get done in the next two years. That could be accomplished by a public letter signed by the town council.  That would give all, town council,. town employees, and citizens, a yardstick to measure progress come the next election.  Mayor Evans did note that he and others on the current council saw the light on more town debt by noting they have begun a savings account for future needs and that is an excellent start in my opinion. There is no way to get all the projects started and problems solved in the two years before the next election but targeting 5 or so would be a good start.

 

 If something does not change Smithfield will become another of those small eastern North Carolina towns that just stagnates and becomes old.  We now have two new council members and one returned one who said they did not want this to happen and I believe voters will hold them to their promise. The other four members left need to join the new members in making changes because if not they might be off the council in two years. I have lived in many of those towns and trust me dealing with growth problems is much preferable to stagnation problems.  Yes, I do know there are people who live in Smithfield and the area who prefer we do not grow, but I hope they are a minority.

Now those of you who live in Smithfield there is no way the town council can do their job without your involvement. You need to decide to be a part of the solution as well. That includes such things as offering to join town or county appointed boards and most importantly attending the town council meetings so as to have your voice heard.  We all live here and most of us want this town to grow and citizens prosper.  Many people have expertise that might be of service.  Town Council candidate Mr. Ragland noted something similar in his remarks at the town forum. I can not speak for Mr. Ragland, but he seems to have interest and maybe could be a source of expertise somewhere in the town.  We are all in this together let's make it work.

 

 

 

                

Agency Reits update

In many past postings I have opined on agency reits and noted that I currently own them in the six figure totals so I am not just bloviating about them. Frankly I had avoided them for many years except for occasional periods where I considered the largest of the bunch Annaly Mortgage, NLY, to be seriously undervalued. Today I own two AGNC and HTS, both I consider fairly priced currently and soon likely to be even better values. There are several other agency reits to choose from so up front do not take my ownership as these being the best as I have my purposes so you do your due diligence. However you can hardly go wrong with NLY.

 

Agency reits make money borrowing money at short term lower rates and then buying Mortgage backed securities (MBS for short) which are paying higher interest rates and making money on the spread.  Note these are US government guaranteed mortgages so your money is absolutely safe and your only risk is if the borrowing interest rates go up so as to cost you more to borrow. You also can get hurt if the mortgage interest rates move up and you are holding MBS securities that pay lower making your holdings worth less. Otherwise the dividends are real nice at around 14% to 18%. 

 

The Federal Reserve made clear back in October of this year that interest rates on the lower end would not be rising for at least two years. Since they have significant control of such rates as they lend much of the money to banks for consumer lending you can rest assured that interest rates on the lower end are set for two years. Add in that with the economy going nowhere I would bet that those low rates are here to stay for a while longer too. 

 

This past week bond guru Bill Gross posted his mutual fund holdings and it was what would be called a "all in" and "bet the farm" moment. Bill has bet over $60 billion, yes that is a B that the Federal Reserve is going to do a QE3 early next year and much of that will be buying over $500 billion in MBS securities. Now Bill bet wrong last year and maybe is looking to make some of his lost wager back, but I would not bet against Bill twice and certainly not a levels this high. He rarely make mistakes, and he as yet to made the same one twice.

 

So if the Fed buys up MBS securities next year the mortgage end of the yield curve is going down and the last few digits of the borrowing end is likely headed lower too. Wonder if you can be forced to pay negative rates?  Anyway the current holdings of the agency reits will become more valuable and that should buoy stock prices and maybe move them up some. Either way the spread will be good for future MBS agency purchases and the dividends will continue to be in middle teens double digits.

 

This will make me buy even more of these babies going forward and I would suggest you consider some of these agency reits as well as part of your portfolio.  You can also buy these reits via an ETF, symbol MORT. I would buy the ETF if it offered options, but for my hedge funds purposes can not. How anyone can put all their money in US Treasury bonds at less that 1% when you can get yields like this that are guaranteed by the same government. Even if you lose 25% of your stock value of a 5 year period, which I expect not to happen you still make around 60% net including your dividends.  US Treasury 10 Year bonds yield at best 10% return over the same period without considering any captial loss risk from inflation.

 

One other benefit of a QE3 are lower rates for home buyers. So home buyer hold your fire and maybe make your move early next year.

 

I am currently long AGNC and HTS.  Also own options on both. Will be adding to one or both by the end of December. Yeah, I am putting my money where my mouth is.

                

BCE continues to reward shareholders.

I do enjoy posting when I own securities that keep doing good things for shareholders. Especially if I have suggested you purchase such securities in past postings. BCE is one of those and this week rewarded shareholders again in a double dose.

 

BCE is the old Bell Canada, or the AT&T of our northern neighbor. Again if you read my postings you know I love Canadian stocks since the government there is doing the right things about getting it's fiscal house in order. Canada has good banking and makes good policy for business friendly investing. Also does not hurt that I pay taxes there on my investments and do not have to do so here. Sorta sticking to the man, read Obama, here in the USA.

 

BCE last week upped their dividend once again.  This time up 5% from $2.07 to $2.17 annual. For those keeping score that is 7 increases in the last three years. What's not to like there?  BCE also extended their share repurchase plan for another $250 million adding to the $1.5 billion they have done in the last three years as well. I like this company a lot and I like that they use cash to reward shareholders.  One other note BCE also added a PREPAYMENT to their retirement assets for employees, when have you heard news like that lately?  Obviously employee friendly too and that makes for good business.

 

The stock responded with a nice boost in price now pushing over $40 per share for a 5.4% dividend yield.  BCE is the largest telecom company in Canada and owns a good bit of the old legacy wire line assets. But like AT&T this company is moving business interests into wireless, data, video, and internet as well.  Growing revenue, growing profits, good balance sheet, and good governance maybe it is time for you to consider BCE for your portfolio.

 

I own BCE long and as a option.

                

European Update

Late last week the markets responding positively to news that Europe had made a decision to solve it's current economic mess. Yes, they made a DECISION to solve them not to SOLVE them. But in these troubled times I suppose a decision to do something makes everyone feel better. I posted last week about how we seem to be driven by emotions now instead of actual thinking, so we get market upsides when we feel better. Hard to invest and trade in such scenarios, but this is what passes for markets these days.

 

Let's dig into the DECISION and see what really happened. Here it is in a nutshell, the French President Sarkozy and German Prime Minister Merkel decided to change the European constitution to make all member countries abide by certain rules that force them on austerity plans. These austerity plans mean that each country's budget must meet certain restrictive criteria as to budget deficits and debt. This basically is a German plan that says you got to cut expenses and move towards paying off some of the excessive European debt. In return Germany will back you up when you want to sell bonds. France gave up some serious sovereignty to Germany for being able to say they helped shape the deal.

 

Now all of this supposed deal making has no teeth to make anyone do anything other than the threat of no bond backup, so when things get dicey and the people in these countries begin to feel the bite of less government spending you can expect member governments to begin avoiding the tough decisions. So all this could unravel beginning maybe next week. Again, as I said this was a DECISION to solve the problems not actually solve the problems.

 

The political angles here are good too. Consider that France has a election in about five months and Sarkozy wants to get reelected so that explains his decision to do whatever Angela Merkel wanted so as to APPEAR strong, when everyone knows French banks are in big trouble. Can he fake this long enough to get past elections?  Germany has state parliament elections coming in 2012 and Angela Merkel needs to win these to hold onto her power too. Germany made clear in this agreement they were calling the shots as they want austerity and not money printing since Merkel knows that her voters want nothing to do with Germany using it's financial resources to bail out the rest of Europe. 

 

The most interesting political angle here is that Ms. Merkel basically told President Obama to go to hell.  Obama wants money printing in Europe and sent Treasury Secretary Geither to the continent last week to express his intense displeasure at the Merkel decision. Obama knows if Europe slips into recession his chances at reelection slip further as well. As I have said before Obama and Merkel do see eye to eye. Some of this comes from Obama being denied his speech at the Brandenburg Gate back on his pre-presidential trip in 2008. Obama holds a grudge and wants his piece of flesh and Ms. Merkel is having none of it. As the year goes on it will be interesting to see how this personal political angle plays out.

 

Europe has a massive debt, massive overspending problem from too much social programs and eventually this must be addressed. Taxes in Europe will soon approach 60% for many people, not just the rich,  in some countries there and at that point taxes become harder to collect as people simply find ways to avoid them. Greece is a perfect example. Wonder why Obama wants us down this path as well?

 

Anyway in the end there is nothing new and nothing to hang your investment decisions on other than wait and hope some adults come forward and make the hard decisions. As of now no adults seems to be in sight. Why does not anyone in the US or Europe consider economic growth as a way out of this mess?

                

Exxon Mobil...better than bonds or CD's.

One of my favorite research sites had a posting on Exxon Mobil this weekend and how this stock is actually considered safer than US Treasury bonds. To be truthful XOM has AAA credit rating and the US currently does not. The point is why own a US Treasury that will pay you at most around 2.0% tying up your money for 10 years with all the inflation risk, when you can own XOM and get paid 2.4% and have inflation protection. Seems obvious to me, but let me add a few more points to this argument.

This point hits home more than anything else one needs to know about XOM. The debt load of around $12 billion is insignificant to a stock that has a $390 billion dollar market cap.  That is what one calls strong a strong financial position. Imagine the US Government with a capital position like that? XOM also has an aggressive buyback program that over the years sees it buy back as much as 5% of outstanding stock each year. So when you consider the 2.4% dividend, you also have to take into account the continuing back buy that makes the stock you own more valuable each year by 5%. If XOM keeps this up it can buy itself back in less than two decades.

Take the fact that XOM earns just over $8.28 per share annually now and only pays out $1.88 in dividends and you can see where XOM get the huge cash flow for stock buy backs. That also leaves XOM with the ability to increase their dividend annually as well.

Take a look at the stock chart and you see a stock that has gone from around $5 a share in 1970 to around $80 today. No it has not been a steady chart, but what would you have given to own those shares in 1970 and still own them now.  That is a doubling every 2 and one half years along with the dividend and buyback's.

Independent experts believe if you valued XOM at the real price of it's assets the total would be over $600 billion instead of the just under $400 billion now. That is likely due to the current Obama administration's emphasis on making big oil companies evil and pushing higher taxes on oil companies. If Obama loses next year you could see a nice bump in the stock price of XOM.

In all XOM is a nice stock to own for those of you looking for a buy and hold stock that pays you well and keeps a close on on your invested dollars. XOM is in my opinion fairly valued here, but it is not expensive either. One could wait and get the stock a bit cheaper if the world economy begins another recession.  But I would not be concerned knowing the financial strength of XOM and the fact the upside is almost guaranteed due to the stock buy backs.  Safe, dependable income, and steady best in class management is hard to pass by in the current world economic climate. XOM is worth a look.

One other note XOM also has good option opportunities as well for you traders.

I do not own XOM either long or in options.

Making oil supply concerns profitable to you.

Oil prices have been surging this past week and I expect the good times might be over for lower gas at the pump prices. The unrest in the Middle East is likely on for good this round. With Iran getting ever closer to the bomb and Obama seemingly just hunky dory with them having gone nuclear the other countries in the region are now on alert.  Add in the worries over Syria and where that might lead as that country looks to fall apart. Irag will soon be under Iran's control with the last US troops soon to be gone.

 

This tinderbox needs just one very small match to set the fire going and it could come from either of those places noted above. Israel is pondering using some force to slow down Iran's push to go nuclear and Iran has said it will close the Gulf to oil shipping it Israel carries through with it's threat. Europe seems to be worried pushing sanctions on oil from Iran and Syria. The US in the meantime seems to be non involved in this process other than sending a carrier fleet to keep watch. Obama's decision to stop the Canadian pipeline looms larger and larger as oil could be cut off from the Middle East.

 

These are trying times as American's go about their daily activities mostly unaware of the scenario playing out in the Middle East since the media is clueless as well. If you do not own some oil related stocks now would be a good time to add some to your portfolio to take advantage of any cut off of supply and rapid increases in oil prices. As I have said before oil supply from safe stable areas makes good sense now and in the future. I suggest ERF, PWE, COSWF, and CVE as good Canadian oil suppliers. All pay dividends which let you make money while you wait for possible oil supply problems elsewhere. China has increasingly over the last few months began to take up the lack of activity from the Obama administration to secure Canadian oil supply and thus will be seeking more supply from Canadian producers. Either by the US changing administrations or China taking the supply Canadian oil has a solid prosperous future and smart investors are taking note.

                

FTR...stock purchase suggestion.

Frontier Communications, symbol FTR, has been beaten down in price the last few months.  Most stocks that have yields like FTR are considered nothing more than stocks on watch to lower dividends and another price hit downward. FTR is currently yielding just under 14%.  I currently own this security and will sell it out of my hedge fund by year end to take the capital loss. But my selling is not saying the stock is worthless nor that it will lower it's dividend. My selling is due to the fact the stock as a derivative no longer performs like I need for my purposes.

 

Most traders and investors believe FTR will lower it's payout sooner rather than later, but I would not be too quick to think that is a given. One reason it is down so much is price is the short sellers have been brutal on the stock, many long term investors have not sold. FTR currently has a 63% payout from the EBITDA and even though that is high it is nowhere near the point where it has to cut the dividend. FTR operates in the world of rural telecom companies where the big boys have no desire to do business. FTR has even bought up more of the wire line business from several wireless operators the latest one being Verizon just a few years ago. Wire line is not a growing business, it might even be a dying business. But in rural US areas it is the ONLY way you can get a telephone service or broadband Internet. It is one of only two ways you can get cable tv, the other being satellite. TV and Internet service is where FTR is growing as it is selling a good bit of new business particularly in Internet service. The race here is to offset losses in telecom wire line with increases in Internet. The pace is slow and as landline customers who tend to be older in age die they lose more of the old wire lines, but younger folks in the same areas are adding Internet and TV. That pace of loss is slow enough that FTR is able to continue paying a nice dividend, pay off the high debt load, and still do a nice business.

 

Now I would not come right out and recommend FTR for purchase, but if you are a risk taker this security might be worth a small percentage of your portfolio. I seriously doubt the stock will cut the dividend and once this becomes clearer there is likely some upside in the stock up to $8 or $9.  That would be a nice bump since you can buy a good number of shares at the current $5.56 price. It also might take awhile for the rebound, but you get paid nicely to wait at 14%. Even if they cut the dividend say to 50 cents form 75 cents annually it will still be earning right at 10% and the stock could move up as a relief rally commences. I can not see if going down much more.

 

Heck I might even have talked myself into buying it again after my wash sale rule expires. This stock is ripe for a long term put sale as well.