Sunday, July 31, 2011

The Endless Run of Liberal Anti-Violence Kabuki Theater

Sitting around talking and reading, my wife turns on the TV to catch the local weather; much too early, unfortunately.  A segment comes on featuring the latest installment of the endless Kabuki theater that is the liberal approach to combating street violence in our "inner cities".

Chicago's new mayor, Rahm Emanuel, wants to "take back the streets", yada, yada, yada.  So will he combat the astounding teen pregnancy rate, which will place yet another generation of very-lightly-reared and poorly-educated young black males on the streets, exactly the demographic causing today's violence?  Will he criticize the "gangsta rap" culture, so pervasive in black neighborhoods, that glorifies and romanticizes criminal behavior and is peddled by rich liberal media executives?  Will he arrest more bad guys and pressure liberal local judges to keep them in jail longer?  Will he lay off the legions of useless extra workers at the core of the Chicago Democrat party patronage system and channel the savings to hire more police to better patrol the streets?  Uhhh ....... Nah.

Emanuel did the only thing Democrats know how to do well, their only trick, other than railing against guns, in their intellectually-exhausted playbook -- he held a street demonstration.  Through a dangerous black neighborhood he led yet one more of the innumerable "take back the streets" marches we've seen over and over again for decades.  That's their solution -- hold a demonstration, as if such will have the remotest effect on violent gang-bangers, and rail against guns, as if city kids aren't also killing each other with knives, bats, and fists, and as if white and east Asian kids across the country are also killing each other with remotely the same frequency with the guns, knives, and baseball bats to which they too have access.

Most major northern American cities have been run for a couple of generations by liberals, and they have made quite a mess of it.  They've earned a fat "F" in social policy, but give them credit where credit is due -- they deserve an "A" in street demonstrations, their cynically-hollow and useless gestures that can sure draw TV cameras and whip up a crowd. 

John M Greco

Wednesday, July 27, 2011

The Debt Ceiling Fight & Viciousness as a Liberal Tactic

The political fight over whether and how to raise the US debt ceiling has become high drama in Washington, and the supposed deadline of August 2 looms.  After a couple of years of an unprecedented, and, to me, reckless, harmful, and, wasteful Democrat spending orgy, the US federal government, we the people, that is, are in a big fiscal hole (link). 

The Democrat plan, such as it is, is to borrow lots and lots of more money to spend much more, supposedly to reduce the debt, but in reality to perpetuate ongoing and recurring fiscal instability that would create political opportunities to hoodwink more Americans into ceding more control over our lives to liberal elites.  The Republican plan, such as it is, after years of complicity as the junior partner to Democrat profligacy, is to spend less, perhaps even much less, to get us out of debt -- eventually.  I'm with them.

Both political parties are apparently taking hits in the popular polls, for whatever they're worth, especially this far out from an election.  But the inexorable decline in Obama's popularity and his eroding stature have been driving some liberals bonkers.  For years, of course, liberals have oft repeated the tired refrain that conservatives and Republicans are ... racist, selfish, stupid, extremists, etc, etc, etc.  So to keep up with the vicious side of their politics, some ultraliberals aren't missing a beat in the current crisis. 

Ultra-liberal New York Times columnist Tom Friedman, winner of the increasingly left-wing Pulitzer Prize, has just referred (link) to Tea Partiers as the “Hezbollah faction” of the Republican Party; Hezbollah is, of course, a murderous terrorist group.  Another ultraliberal NY Times columnist, Nobel Prize-winning Paul Krugman, just referred (link) to conservatives with different views on the debt crisis as "a cult that has really poisoned our political system."  Comedian and Democrat Senator Al Franken, another vicious ultra-liberal apparently of the Stalinist mode, just debased the United States Senate by displaying (link) on its floor a poster shouting "Welcome Terrorists" in reference to those whose views differ from his.  Demonize, isolate, and other moves right out of the socialist Rules for Radicals standard playbook -- for Friedman, Krugman, and Franken, just another day at the office. 

As Obama sinks further in the polls and as he increasingly looks to more and more people like an incompetent, arrogant jerk, Democrat viciousness will only increase.  It's all they have left.

Addendum:  Jonah Goldberg wraps it all up here at National Review Online.

John M Greco

Thursday, July 21, 2011

Obamism as Peronism

The inimitable and enthusiastic bard of hard-nosed reality John Derbyshire, a polymath whose somewhat recent book "We Are Doomed" (link) I thoroughly enjoyed, has a great post today, arguing that the model for modern liberal politics is actually Peronism.  Derbyshire writes (link):
The more I look at the history of our national debt and federal spending, the more it seems to me that …. [t]he guiding spirit of fiscal management in the advanced world this past half century has in fact been Juan Perón, who ruled Argentina from 1946 to 1955….  From Paul Johnson’s Modern Times:  “As President, Perón gave a classic demonstration, in the name of socialism and nationalism, of how to wreck an economy….  He created Big Government and a welfare state in one bound….  [Eventually,] He fled on a Paraguayan gunboat. But his successors could never get back to the minimum government which had allowed Argentina to become wealthy. Too many vested interests had been created: a huge, parasitical state, over-powerful unions, a vast army of public employees. It is one of the dismal lessons of the twentieth century that, once a state is allowed to expand, it is almost impossible to contract it.”
Now of course the U.S.A. is not Argentina….  We have, though, followed the same trajectory as Perón’s Argentina, albeit more slowly and gently. He got from “the minimum government which had allowed Argentina to become wealthy” to “a huge, parasitical state” with “a vast army of public employees” in just five years; it has taken us five decades. The end result for our respective peoples will be the same.
JM Greco

Friday, July 15, 2011

Investing Solo – Sweet Spot for Closed End Funds

The recent Fed statement that I interpret to mean that it will not be raising the short term interest rate for the foreseeable future, coupled with the futures market projection that the first significant hike will occur in about 18 months, and a mild one at that, has led me to start raising the portion of my portfolio held in leveraged closed end funds, which can borrow at short term low rates and invest the proceeds.  I’m looking to go as high as about 15%, depending on the opportunities as they arise, from a starting point of about half that.

I’m interested mostly in increasing CEFs on the debt side, with the exception of those that hold MLPs. I am skittish about stocks given the poor intermediate term outlook for the economy particularly in light of the massive federal debt and the uncertain business environment created by the Obama administration, the long term lower spending by consumers as they reduce their own debt in the face of uncertainty, and the 10-year Shiller P/E that suggests that stocks are currently overvalued. There have been long periods of time where the return on stocks has been flat or negative, inflation adjusted (e.g., roughly 1965 to 1982 and the last 10-11 years or so), and there seems to be no reason the current price stagnation can’t last for many years to come. I like investing for total return, to be sure, and I think investing for current yield is generally the best way to accomplish that.

My current CEF portfolio follows. I’ve been adding to these positions as opportunities arise – dips in price and discount, and with certain uncommon special exceptions, I'm particularly attracted to those from large, reputable portfolio managers whose trailing net investment income exceeds distribution with positive undistributed net investment income. The specific funds I have, when there are others in the category and fund family, were/are determined by the various relative metrics plus relative discounts on the day of purchase.

>> Municipal Bonds: The sweetest spot of all given the recent default fear in this market segment. Taxable equivalent yields at the 35% rate are above 10% on a slew of issues. Right now I have significant holdings of only Nuveen funds: NPM; NPF; NXZ; NVG; and NEV. I was out of muni CEFs entirely at the beginning of this year when the price drop on the default scare created bargains too good to pass on, and I now have substantial capital appreciation as well as great yield. The share prices may still have room to go if higher taxes are in the offing.

>> Mixed/go anywhere: I hold three CEFs from Pimco, whose CEFs are almost in a class by themselves given the very active portfolio management, high premiums to NAV, and significant monthly under-distribution coupled with year-end specials (link). I have significant holdings of PFN and PFL, currently distributing 7+%, which hold more corporate debt than anything else, and PKO, now at 8+%, which has more of a focus on asset-backed securities. I’m contemplating paring PFL given the large run-up in premium to NAV since Bill Gross, the port manager, mentioned it in Barron’s in June, and swapping for PKO or PFN, depending on the numbers at the time.

>> Preferreds (equity pfds & debt hybrids): Distributions are 7-8%, up to about 9% TEY, and I am holding my positions in JPS and JTP (link). I’m not adding more to this sub-class right now out of concern about the rate of redemptions coupled with the run up in price in the individual securities with which funds must deal.

>> Mortgage-back securities: CEFs vary a lot in the amount of residential agency versus non-agency, and the amount of commercial and other asset-backed debt, and of course in overall credit worthiness. My largest position is FMY, currently distributing over 9%, which is IG and mostly agency. I also hold some HTR (whose management has just also taken over FMY) and a little DMO and JLS, all currently at around 8% or better.

>> Foreign debt: I have modest holdings of GDO (more toward IG) and EHI (more junk), both over 8% right now.

>> Floating rate: This category consists of funds with floating rate senior secured bank loans, plus GFY (link) which I hold as well. I have significant holdings in JFR, BHL, and TLI, distributing now 5.5 to over 6%.

>> MLPs: I like the prospects for this group -- I have a substantial allocation to KMR, the stock version of KMP. I also hold CEFs KYN, KMF, and NTG, all now yielding 6-7%.

>> Stocks: I generally disfavor CEFs as vehicles for stocks, especially since so many follow an options writing or dividend capture strategy. I have one modest holding in this category, one which uses preferred stock for funds for leverage and holds utility stocks – UTG, currently distributing almost 6%.  I also have a nominal starter set in UTF, which holds infrastructure stocks like utilities, pipelines, and toll roads, and currently yields over 8%.

>> Real Estate: I have been out of this asset class for a very long time, but on a recent dip I have just established a small starter position in the CEF IGR, whose holdings are about 45% outside the US and currently distributing about 6.5%.

Mike Parenti

All Investing Solo Posts

I’m an individual investor with no background in finance or securities, writing things down to help organize and clarify my thinking. Of course, nothing I say constitutes investment advice of any kind – merely an account of my personal observations and decisions. My core portfolio is a conservative and diversified mix of equity and debt mutual funds, ETFs, and some closed-end funds (CEFs) across investment styles, management firms, and accounts, and I invest a relatively small amount (about 10%) somewhat more aggressively in the perhaps ultimately futile pursuit of alpha.

Friday, July 8, 2011

Still Stuck in the Obama Recession

After crawling out, barely and only technically, from the Great Recession, the American economy can't seem to straighten up, let alone walk.  Today the news is that the unemployment rate has risen (link), and that's after a bunch of people have left the job market all together who aren't even counted.  Meanwhile, Obama and his allies keep bashing Republicans with references like "gun to the head", "Taliban", and "suicide bombers".  That's what passes for the new Democrat civility. 

We have a horrific spending problem (link) that threatens to bring down our economy, yet the Democrats want even more government.  More taxes, more stimulus, more debt.  Their real aim is to turn America into a version of the socialist European Union, with its entitled ruling class, crushing government regulation, increasingly uncompetitive economies, and chronic high unemployment.  They're well on their way here, and today's unemployment figure is just more proof.  Obama's has been the weakest post-recession recovery, which is still ongoing, since the Great Depression.

Victor Davis Hansen in "Business Replies to Obama" (link):
The United States has tried the largest stimulus in its peacetime history, with record $5 trillion borrowing in Obama’s first three years. Yet unemployment is much higher than when he entered office. The more he talks of stimulating the economy — with subsidies to “green” industries, government take-over of private enterprise, massive annual deficits and federal hiring, cash for clunkers, etc. — the less the private sector seems to hire or invest....  Those who have saved money and in theory could invest are scared off by uncertainty over new federalized health-care costs, by massive government spending that must be paid back and will cause higher interest rates, and by all the talk of new regulation....  When a Van Jones was in charge of encouraging green job growth, the symbolism is not lost on the guy trying to keep a paving company going.  The list could go on but, in short, hundreds of thousands of employers have sized up this quite extraordinary administration and concluded that it does not ... appreciate or even know much about private employers. And thus the business community has collectively decided to sit tight, keep quiet, and store up cash until this bunch in the White House leaves....  And so now the job creating community that makes America work is replying, in its stasis, that it likes Barack Obama about as much as he likes them.

John M Greco