Reelecting Obama means leaving no debt behind.

First off let's be honest this idea is not something we thought of on our own, No siree we watched too many other people do this for a long time and after trying to convince others. notably progressive types, that it was just plain morally wrong we finally found it was useless to try convincing them.  You see the poor, as defined by Obama those making under $88000 ( look it up if you do not believe me as to how poor you have to be to get health care premium assistance under Obamacare, I will wait here for you to look it up ) are getting some real help in this country. 

On the other hand we have watched the very wealthy, such as the soon to be extremely rich Mark Zuckerburg of Facebook, find ways to get completely off the tax rolls by not taking a salary and just piling up debt to be assumed by lenders and taxpayers after they have passed on. Movie stars. rich liberals,  and pro athletes have been using this debt planning all along with tax dodging personal foundations on the side to accumulate wealth and pass on to their children and at the same time dump debt on the taxpayers later. Trust us on this one too that most of these rich people are doing it with the blessing of the Obama administration since they plan on doing it themselves, after all Obama is an elite like them.  So we figured to heck with it let's join the party so my friends below is a way you the middle class American can get in on this party too.  Note if you have concerns about screwing your kids and grandchildren then read no further. 

Honestly here is that we work the angles. God blessed us with a gift of seeing every angle every loophole in a situation and how to take advantage.  Maybe it is why we run a personal hedge fund, helps to be able to see angles where others see nothing.  Applied for a job position back in 1992 with a national brokerage and took a couple of tests to see if we could make the grade. Tests came back with two notes, applicant is supremely talented to do this work, but could be a compliance risk.  The person who was trying to hire us said if I did not know you personally to be a honest person they could not overlook that last part of the results. Offered us the position anyway, but we went on to other employment at the time. 

All this is to say our latest and maybe greatest angle is leaving no debt behind.  We are currently in process of buying a home and for the first time in our lives with a 30 year mortgage. Again the angles.  We have bought three houses in our lifetime, in two we persuaded the seller to self finance and one with a no interest loan for the purchase. The next one was a 10 second swap of documents moving a check to pay for the home into a interest only home equity loan.  The rule for most of our life was to keep assets liquid, make cash payments for most everything to avoid interests costs, and maximize cash flow. Times they are a changing however. 

Having a shall we say a very ideology bound US President and the possibility of that person being reelected offers more significant angles.  As someone who just took out a 30 year loan which barring medical science discovering the youth gene we will not be alive to pay off this loan is new ground.  Yes, the interest rates are dirt cheap, but there is more here than meets the eye. Obama's policy here is simple.  Obama is trading the power to take away the ability to rise as a person economically in this country for a lifetime of security, at least supposedly security. So in essence he will pay off the older generation to get out of the way and let him do it.  Well we are standing in line here for the payoffs. The payoffs are taking on significant debt in houses, vehicles, credit cards, and living the good life knowing Obama will be there to mop up the mess, take on the debt, and pass it on via now wholly owned government banks and the federal government to the younger generation. 

Housing debt under Obama offers the chance to get homes that are already at discount pricing and in places you would really like to live, but would normally be beyond your budget,  knowing that once you grow tired of living there or no longer desire to pay the debt you simply walk away.  No sweat, no regrets, and for the first time ever in America no stigma from taking on and not making the payments. Under Obama it is now the fault of the lender who made you the loan, heck you can even sue the lender now and make a buck. Is America a great country now or what?  Ditto on credit cards, load up on electronics, new furniture, and when you can not pay blame the creditor and walk away. Yes, we know you are asking, but what about your credit score?  Trust us at my age now who cares, we are not going to be buying any big items anymore so why does it matter if our credit score is in the toilet at 500. Besides if we do really need to buy something we need Obama is right there to make it happen via some government program. 

Maximizing consumerism to the extreme is the angle here.  Lots of social security going forward, lots of taking on bankrupt companies pensions via the Pension Guaranty protection of the federal treasury, and lots of life lengthening expenses via Obamacare and Medicare before that healthcare Ponzi scheme runs it's course too. Makes one wonder which Ponzi scheme goes down first Social Security or Medicare/Obamacare, but who cares we will not be here to worry about it anyway. Does it threaten to bankrupt the younger folks, you bet.  But if these younger folks and liberals are going to do it by voting Obama a second term anyway then why not take them up on the deal.  If my thinking and financial figuring is correct the entire national pile of trillions dollars of debt will collapse about the time we begin pushing up daises. 

 Might even consider voting for Obama, but have problems with that since we will in essence be voting to screw younger generations for our current enjoyment.  We would rather take advantage of the fool voters than do it ourselves.  Makes it easier to laugh at such voters when they realize about three or four years from now they have been had. 

Anyway let's keep on the buying spree with no concerns about paying off any debt, just defaulting as we need to at the time. Hope you people who are going to vote for Obama do not catch on and vote for someone else in November 2012 since then we be in one heck of a debt laden mess.  The thing that amazes us is that there are people out there who are willing to follow this piped piper off the cliff.  Anyone know where to get one of those state of the art 72 inch HDTV's, of course we are not concerned about the price.

                 

 

Pain in the Portfolio

Several weeks into the April options period there are points of pain in the portfolio. Much of this pain is from the moderate sell off going on in the market right now.  We are slightly under water in JNK, BCE, and DUK. Each of these are solid blue chip companies with bounce back potential when the market recovers.  We are down less than $1.00 per share in each and expect it would take a serious downturn in the market to make these stocks sell off seriously. This is the very reason we selected these securities as well as many of the ones where we are still in the money.   AGNC, CTL, LO, NNN, O, and T are all still safely in the black currently.  FTR where we have two long term options is higher since we sold both option positions at almost the perfect price. 

The pain in the portfolio comes from two stocks where we sold positions and we are currently down over $1 per share

We are down just over $1 per share in GG. But since the underlying asset for Goldcorp is gold and they are the best of breed we still feel good about this position. Unless the federal reserve stops printing money and Obama stops his spending spree we believe gold still is a solid future for investors and traders.  Besides $2 per share in GG is a day's movement sometimes in the security. Nevertheless the fact that gold prices can be quite volatile we are keeping a close watch on GG.   

The stock where we find ourselves down significantly is ERF.  We have likely made more money in ERF than any other trading stock in the history of the fund.  The current position was taken right after a stock offering where ERF sold stock to gain capital to pursue additional opportunities and considered the buy position a good entry point.  However since then ERF delivered their annual report and the cash flow presented a picture of a company that might not be able to continue to pay the current dividend without incurring debt. The CEO has said that the dividend is safe and that the recent capital raise gives the company adequate cash flow to continue the dividend while spending on projects. Examination of the current budget makes it clear he is technically correct. But others look at the capital raise and see that being used for dividend payments. Highly regarded analyst Kurt Wulff agrees with the CEO. So take your pick here.  Our opinion on the situation is that with the current capital raise the cash flow is there for the time being. It there is a need for additional capital and share dilution then the current dividend payout is suspect.  Simply put the projected 2012 cash flow is $849 million and distributions are $423 million of that. There is around $300 million available for capital projects out of cash flow.  ERF is spending more than the $800 million in capital projects during 2012 aided by the stock sale earlier this year, but less than that going forward. 

The stock is being driven down by relentless short selling who believe this scenario makes it clear the dividend must be lowered. We are down over $4 in the stock with a large 4800 share position.  Several stock brokerages now believe ERF has entered bargain territory and even if the dividend is cut the stock price compensates for the reduction. 

We have reached the point where we will begin selling option positions going forward in the money on ERF if we remain this deep in the money by April options expiration.   The idea for the fund will be to continue to produce the maximum cash flow and accept any loss we have in ERF to open this trading position going forward.  If we do sell out of the position at that point we would reevaluate our consideration of ERF for continued inclusion in the portfolio this year.  ERF is an excellent Canadian oil producer, but the weakness in the shares makes us wonder about ERF as a trading vehicle in this environment.  Fighting the shorts long term can be a tough job. 

               

Back Home. Down Home. Down East.

Like the loggerhead turtles, like the spot runs in the fall, like many of my longest known friends and family before me, I am back home, down home, down east.  It has been just over three decades since this Coastal North Carolina boy got to wake up with the ocean waves lapping at his ear right over the sand dunes from a place I could call my home. Now I have those waves again just a few steps from my front door.  Having spent many years chasing my dreams and fortunes in places like Clinton, Fayetteville, Lumberton, Smithfield, and Raleigh I get to spend much of my last years of life on the coast of North Carolina.  It is as it should be. 

What is it that binds us to this place, this place called Eastern North Carolina and especially Coastal North Carolina.  Those of us born and raised in the counties adjacent to and close by the Atlantic Ocean in this state find ourselves drawn towards this area all our lives.  Is it the ocean? Is it the old friends? Is it the memories? What ever it is, it is a feeling in all of us from Coastal North Carolina that we find Sweet Southern Comfort when we return there.  It is a life long love we can never fully explain. 

 

Oh, do not get me wrong I love all the places I have called home over the last three plus decades. In towns along Interstate 95 is where I have spent most of my working years like my fathers and grandfathers before me who spent their lives along then paths of commerce such as Clear Run, Calypso, and Turkey.  Even now I continue to take in the enjoyment of visiting with friends, dining at favorite restaurants, and reminiscing in these places where I once called home.  

But in the end back home is where I spent much of my early life and as my life begins it's likely last couple of decades I find my myself blessed by God to return to having a home down east.  Remembering going fishing at The Scotch Bonnet pier with my father and mother, remembering driving down to the north end of Topsail Island when there were no lights to be found, remembering the old Atlantic Beach Circle where I first heard the Embers and learned about beach music.  Unlike people who go to the beach for pleasure, unlike those who have second homes there for enjoyment, my new home there is really going back home. 

 

I look forward to walking the beach and pier with my wife.  I look forward to fresh seafood especially from the Riverview, where I have not dined in years and my new found love Nickys of Swansboro. I look forward to shopping in Jacksonville again, where I spend many days with my mother learning how to shop for bargains. Having the opportunity to be close enough to Richlands so I can take in lunch at Arnolds and attend my home church occasionally . The regular enjoyment of knowing my highest elevation point during the week will be trips over the high rise Emerald Isle bridge where I can enjoy the wondrous beauty of my Eastern North Carolina sounds. Enjoying the quiet solitude at the end of a long fishing pier.  Regular trips over the White Oak river bridges at Swansboro where the breathtaking view rivals any in North Carolina.   Being in the daily presence of some of the finest people on this earth, US Marines.  Finally this flat lander is where he wants to be "whatever the phase for the rest of my days".  

 So excuse me if I am distracted as I take in the salt air and peace of the my beloved eastern North Carolina beaches and sounds. I am as much a natural part of them as the loggerheads and spots who return home here too and here it is hoped that I will breathe my last breath and be buried in sight of the New River overlooking Onslow Bay. 

 Have you ever stepped on a sandspur barefooted? Then you must be from down home!

                

Small Town Investor First Quarter Report

Another excellent month with our reduced exposure portfolio. GG, NNN, and ERF were our biggest profit makers this month producing solid premium income. We traded only 9 positions this month which is down from last month  Since this the quarter end we will report only quarterly results. The net result for the quarter was goosed by another large long term put option position opened this month in FTR.  As with our last long term FTR option we placed it off balance sheet since it is a long term position. Our quarterly results also include our carry forward loss in ERF since we own the stock and have the loss on our balance sheet. It is not a realized loss and could recover before year end when we normally cull losses from the portfolio.  Our first quarter annualized net yield was 17.69% or just under our stated goal of 18%.  Slow and steady with low risk exposure is winning the race this year as we had expected.  Actual results without the deficit in ERF was 20.60%.  The first quarter of 2012 was the largest net cash flow in the fund's history.  Not bad for our low exposure positions. 

We had no realized losses this month and only a small one for the entire quarter, much lower margin interest and lower fee expense than normal helped make the month and quarter a success as well.   During March the positions we opened again for the most part were in the money enough to give us some margin for error during the coming 5 week trading period. We feel confident in our approach and will continue this path for the foreseeable future. Since our portfolio remains exactly the same as posted for the first quarter 2012 we will not be posting an update going into the second quarter.  

Looking to April trading we will have all 9 trading positions open. That should offer continued opportunities for cash flow and profits. As noted in earlier reports we continue to look for long term option opportunities as well.  Our long term option scenario is 6 to 8 annually going forward. We consider an long term option generally 6 months out of more.  

Two Opportunities for Investors and Traders.

Shorting a stock is a time honored technique where traders who believe a stock is going down simply borrow shares from someone else and sell them repeatedly assuming they can buy back the shares later at a lower price. The practice tends to produce the desired results because this repeated selling pushes the stock price down and scares longer term investors out and their selling pushes the stock down further. 

Smart traders and investors take patience and time to look for these beaten down stocks, do their due diligence and sometimes decide what has occurred is nothing more than bargain time in pricing of some stocks. Note that this short selling many times is actually saying there IS trouble in the company and indeed the stock price will come down. So research is very important here, but when that research is convincing the opportunity is very ripe for investment gains. 

Now most people like to buy a stock on the way up like what is occurring in Apple shares right now. Apple is the stock that in many investors eyes will make them lots of cash like betting in a casino. Maybe it will, maybe it will not. What we do know is in my decades of experience that chasing stocks up is fools good and only the best market timers survive. We like to find values and value pricing and take our bets in stocks where downside is limited and upside is most positive. 

Two stocks in our current portfolio are currently being taken to the woodshed and beaten down good. 

One Frontier Communications, symbol FTR, is one of our favorite option plays. Earlier this year it took a pounding from short sellers who just knew the company would lower it's dividend and the price would fall further. We will leave it to you to find our posting on this security a month or so ago when we took a well researched and somewhat risky option play on FTR which in the end paid off most handsomely. Today the opportunity is again upon us with short sellers pushing FTR to around $4. The dividend is solid, the company sound and finances improving and the shorts are plainly wrong here. Therefore the opportunity to take a long term position is very good here at just above $4 per share. You get an almost 10% very safe dividend and some possible upside when the short sellers give up. The opportunity to take an option position is just as good. If the short selling continues today we plan on taking a November 4 put option on this stock at 50 cents a share or better.  

The other stock is Enerplus, symbol ERF, which is a Canadian oil company. We have loved this stock for years and even with some losses we took last year it has made us lots of money over the years. The shorts have piled into this company because they believe that the stock is paying a unsustainable dividend. This indeed may be so, but the CEO of the company in repeated interviews has made clear he will stand by his payout which now is almost 10%.  ERF is a situation where as we noted above offers the opportunity to take a position in a company rich in value, but has risk due to being in the oil sector.  Two scenarios. If the company lowers the dividend the stock likely will stabilize and move up since there will less financial pressure on the finances of the company. Even then the dividend will not be lowered hugely and you will have a stock with good capital gains potential and a nice payout. If the dividend is not lowered you continue to get a very juicy dividend and a stock at a bargain basement price. We might be proved wrong here, but there is little to lose and lots to gain if we are right.  We currently have a large put option position on this stock and will not be increasing that position at this time. Note that ERF is a monthly dividend and there is a Canadian tax of 15% before you get the dividend. The Canadian tax can be taken against your US tax as a credit. 

Dinner on the Grounds...A humorous look at one of North Carolina's oldest traditions.

Dinner on the Grounds is a hallowed tradition in North Carolina, especially Eastern North Carolina. For you non native North Carolinians let me define DOTG.  DOTG is an event at a church where everybody brings something they have cooked to eat on one particular Sunday. Generally the event occurs right after Sunday morning services outside on the grounds of the church and sometimes it can be rolled into Homecoming at the church. Now I have yet to have found anything about DOTG in the Bible, but it has got to be there somewhere.

 

As they say in my neck of the woods, "my mama did not raise no fool", and being properly raised I have NEVER turned down an invitation to any church where I have not tried at least one DOTG . I might miss one here but I have partaken of DOTG in Richlands, Jacksonville, Holly Ridge, Kenansville, Bear Marsh, Mount Olive, Clinton, Lumberton, Fayetteville, Kinston, Smithfield,  and one little church in Parkersburg that makes my mouth water right now just thinking about it.  Folks there is no better eating than DOTG. There is also no food planning needed.

 

DOTG means you get the very best of each mama's cooking, after all these ladies want to bring their best dish and want appreciation for their work.  You are there to provide such appreciation. So do not avoid any dish that you might like. For example I love butter beans and at a DOTG you can find as many as 5 different styles of cooking this vegetable and every single one is some kinda good. Ditto for corn, green beans, potatoes, and you name it. You will find every kind of beef and pork dish imaginable too. Casseroles of the like you have never seen. 

 

Now proper etiquette is important if you are to attend a DOTG.  Come the spring when many of these occur,  it is ok to drop hints in your workplace or anywhere churchgoers might be that you really enjoy DOTG and that should do it to get you asked to one of these babies.  Never turn down an invite to DOTG from a church you have never been too. Not only is this considered bad manners in North Carolina, it is dumb. Next if you are single this is your chance to ask a girl or guy you have had the hankering to ask out and just knew they would say no.  Trust me on this one if they turn you down for DOTG  they are not worth going out with period.  Most times the answer will be yes since they know what is coming in the food area. Next ALWAYS go to the preaching before DOTG, that right there will set you apart from being someone with manners and someone who has none. Then once preaching is over head politely to the food area making sure you are never first in line, but pretty near the front so as to get the best choices. Being first is bad manners. Finally dig it not being afraid to get all you want and have no fear of piling two foods on top of each other. One real advantage of DOTG eating is everyone EXPECTS you to eat your fill and more.  You will not only be picking up food you will also be picking up pounds. Going back for seconds is also ok and frankly is considered good manners here. Be sure to try several different varieties of the same food as I mentioned earlier. I believe it says in the Bible that God forgives those who overindulge at church DOTG. 

 

One other note, if they have soft drinks and such DO NOT use these for your beverage that right off tell others who are looking at you for further invites that you might be a yankee. Drink the tea, it will be sweet, but do not ask if it is sweet since that too will give it away you are a yankee. Tea is made just for that purpose to find out who the yankees are and they are not invited back next year.

 

Next is the dessert table and proper manners is most important here. First off you "keep your fork", throwing your fork away means you do not show proper concern for the finances of the church. If they have those small plates for dessert get one, if not just use the plate you used for eating the first course since all this stuff ends up in the same place anyway.  Again it is ok to pile cake on top of pie and come back for more. In fact at the dessert table you are required to eat more than one kind and frankly praise to your hearts desire here since the ladies who made the desserts hang around this table taking in the compliments.  This is important because if you eat enough different desserts and praise enough chances are real good some nice lady will send some dessert home with you. Not only is this considered very high manners it make some mama really happy.

 

Now here again is the most important manners at DOTG and will get you invited back every time. One, always complement the preaching to several people including the preacher. Two, complement as many mama's and ladies as you can find about such and such food being the best ever. As I said these ladies work hard at their best dish and they are aching for compliments so pile them on. Finally, eat all you want, that is expected and considered good manners as the ladies who cooked this food look upon this as an exclamation point on your compliments.

 

My best memories of DOTG is at my old home church in Richlands NC where we literally closed the street by the church in town so all the food could be spread out on tables and bring lots of chairs out from the church to sit on while eating. I remember watching ladies in top Sunday dress batting away flies from the food as they laid out the table.  I remember searching for my mama's pound cake and hoping others pass it by so we could take more of it home. I remember what always seemed to be a beautiful sunny day each DOTG day. But mostly I remember the fine food that can not be topped by anything cooked today in a restaurant and the fine fellowship with people with which I grew up. I expect if you are 40 or older and from North Carolina you have such memories yourself. If so consider yourself blessed to have participated in this North Carolina tradition.

                  

Real..Real Estate Investing

For years we avoided investing in real...real estate preferring to have real estate investment trusts to do my bidding. The reason is that the up front costs, personal involvement, and possible return were not worth the asset allocation. Frankly most of rental real estate is get rich real real slow if that. Things have changed.  Frankly good real estate can now be bought where you recover your up front costs the first day with asset recovery from the discounted selling price.  Funny thing is that for years people have tried to accomplish this little game of real estate quick riches by following the television real estate preachers who hook you with buying a book from them or going to a high priced class. Today you can actually do that to some extent sans the book and class price. 

The other concern about real estate for us can be illustrated by the old Jay Leno commercial.  Jay did a Doritos commercial many years ago that had him sitting in a chair talking about the great taste of the product that ended with the tag line, " eat all you want, we'll make more!". Now that little point of about "we'll make more" has always been the drawback for us regarding real estate investing.  The making more is the reason we had the real estate crash.  The huge oversupply of existing homes right now is the primary reason real estate can be bought at prices not seen in decades.  Even when the real estate market returns to something near normal builders will again have the option of making more anytime they want again putting pressure on values.  This is true for almost everywhere in the country except for a few locations.  One of those places are strong inner city cores like New York City where there is nowhere is to build and many people need to live and work. The other place is seashore real estate. In many places along the seashore almost all the open lots are built on now and the ones that are not built on require extensive environmental and local codes that make then much harder to build on. Therefore the real estate values at beaches however depressed should be the first to rebound in price and likely will stay that way. 

For the past year or so I have suggested to some of my more well off investor friends that one of them needs to set up a partnership of investors where they buy depressed price real estate on the coast of North Carolina.  Almost all of North Carolina coast real estate is 25% to 40% off in price compared to just a couple of years ago. Much of that real estate is below replacement value. Some of that real estate is bank owned or in short sale due to the purchase by people who were either investing thinking they would flip the home or someone who bought the home and now is unemployed and can not make payments.  Right now there is a small glut of mostly existing real estate in many North Carolina beach areas and the people who are trying to sell are being forced to lower prices and lower again to sell.  In those beach areas that are basically full built out due to the lack of available land once the oversupply is sapped up the prices will begin to rise significantly and before real estate recovers in other areas. 

Our personal favorite area is the Bogue Banks area. The real estate market there is all but fully built out, the vast majority of existing structures are single family residential, and the existing regulatory climate there is most positive.  The western end of the island known as Emerald Isle offers the most opportunities in our opinion due to the prevalence of all the factors noted above, plus some solid zoning and easy access via the local high rise bridge. There is also the fact that many families like to have a home to spend their vacations in and the rental market remains strong. 

The sweetener here are the lowest interest rates in years. Good credit and one can get below 4% 30 year loans currently.  Looking down the road 10 years rates that low makes one think that you will basically be paying back with inflation adjusted free money. 

 We suggest if you are in the market for real estate either as a home or investment take a look at seashore opportunities.