By George

HEALTHY WEALTHY AND WISE

2009-06-26T19:25:00.000-04:00

BG26062009

HEALTHY, WEALTHY & WISE

We’re getting a healthcare bill one way or another. The key will be if we can get wealthy by being wise even if we don’t get healthy.

By Neil George

You would think that as a nation that spends up to 20 percent of its GDP on healthcare that we’d be one of the healthiest in the world.

Putting that into perspective – other nations such as our neighbor to the north Canada only spend about 10 percent – or about half as much as a percentage of its GDP. And then there are others that spend much less – including Britain and New Zealand that keep their spending down around 8 percent or so of what they produce.

Meanwhile – on the list of nations with the longest average life expectancy – guess what? The US is only number 45 on that list with other nations that spend a whole lot less in percentage of GDP as well as per capita ranking far and above the US.

So, we spend gobs more money – but are we really getting what we pay for? And then there’re the millions that aren’t spending because they’re out of the mainstream healthcare market.

The result is one of the really big political hot potatoes that the House and Senate are currently trying to rush through before the next campaign season begins to formulate as we head into the later part of this year.

Rush Job

Like so many government initiatives over the past several years – the healthcare legislation is being rushed through in very short order and we as taxpayers, investors let alone patients are going to be stuck with the outcome.

Everybody has a skin in this game. And with trillions of dollars at stake – the lobbyists are working overtime.

Everything from liability and lawsuits for lawyers and then on to the doctors, hospitals, insurers, pharmacies, pharmacy benefits managers, drug companies, medical device companies, medical real estate investment trust companies as well as plenty of other direct and ancillary businesses and industries have big money to be made or lost.

And then on the user side – there are plenty groups that want everything for their beneficiaries while not wanting to sacrifice or pay for anything.

It does beg the question – why don’t we just begin to nibble on troubles and the challenges – rather than creating a huge government plan all at once?

Why don’t we take some of the real issues and begin to fix them one by one?

Piecemeal Policy?

Let’s start with a speech that the president gave to the American Medical Association (AMA) on the 15th of this month? One of the biggest cost factors in medical care involves the cost of lawsuits and insurance and procedures to defend against them.

The president gave a speech that called for cutting malpractice lawsuits as a major cost savings. I would agree and the AMA and all the doctors and affiliates have been dying for this – stating that it would save billions which would reduce the cost of healthcare.

But another group – the American Trial Lawyers (ATL) is steadfast against this as this would take those billions out of their pockets. So, the president stated that while we need to cut malpractice suits – we can’t limit damage awards. Why not? We do in plenty of other industries – including the financial and banking industries?

Just this step alone would be a big saver. And as I’ve written for years and years – we could couple it with a tracking of medical errors and publish the records of doctors and hospitals so that we as patients and insurers would move to avoid the troubled providers while seeking to reward the better quality providers. A win-win for all sides?

Well, the AMA doesn’t like tracking of errors like we do for brokers in the financial industry. And of course as noted about – the ATL doesn’t like cutting back on how they can sue – so we’re stuck.

As for the millions of uninsured – did you happen to see the George Will column on the 21st of this week?
(http://www.washingtonpost.com/wpdyn/content/article/2009/06/19/AR2009061902334.html)

He made a pretty good case for what I’ve been agreeing with again for years. If you take the number of the uninsured it’s a lot more manageable than what is being blown up by too many lobby groups.

The core of his message is that the uninsured can be broken down into a few key groups starting with the temporary uninsured. These are the folks that lose their employer-provided coverage moving from one job to another. And for the vast majority this group get solved within 6 months or less.

The next group tends to be eligible for Medicare and/or Medicaid – but fail to or don’t even try to apply.

Then there are the millions of non-US persons that really are outside of the government’s concern for healthcare as that’s another hot button political issue.

The remaining group is the really uninsured – including the uninsurable which is a fraction of the 40-50 million number that gets thrown around in speeches around the nation.

And the fix is a whole lot smaller than remaking the entire market for all of us. Why not just issue tax credits or as Will suggests – just issue designated debit cards with cash and arrange for private insurers. Or if this is unpalatable – set up an extension of Medicare for this group.

But trying to address the core smaller issues doesn’t get as great press as a huge government program does. And when the smaller issues are brought up to the public – that’s were we tend to get bogged down by the lobby and political interest groups that stop any small changes.

What We’ll Get

So, we might end up with nothing done by this Congress – or if we do get the big huge government program – I continue to think that it’s going to end up looking just like I’ve been writing about for a while now.

And it’s the same spiel that the president and other politicos have been doing their stump speeches about for years now.

How many times have you heard and read about that the nation should be entitled to get the same healthcare plan as members of Congress and the US government?

Well then – that’s pretty much what’s running through the Senate right now.

The deal might well end up following the model of the Federal Health Benefits Plan (FEHBP). This is the system of health insurance coverage for Uncle Sam Incorporated’s employees.

This looks much like the cafeteria benefit plans of many private sector employers. There are a collection of insurers that have plans that vary in flexibility and benefits that are priced at different levels on user/consumer expenditures.

To get there – we’re going to get a legal mandate to participate and pay or be taxed and then forced to enroll.

And employers will be mandated to provide coverage or pay fees to have the government provide the coverage.

And lastly, we’re all going to be taxed one way or another – much like we’re already taxed for Social Security (FICA).

Now the good news. While this won’t fix costs, service issues or even quality – it will feel good for the politicos. And for us investors – we can cash in as this all unfolds by buying into the companies that already have the inside track as they’re already the leaders operating inside the government’s existing FEHBP plans.

One of the leaders in this market segment continues to be UnitedHealth (NYSE: UNH) which should be inline to get a bigger chunk of public and private cashflows as this whole big plan goes through.

And if it doesn’t – well then it keeps collecting all of its current premium flows from Uncle Sam as well as the myriad of private sector companies and individuals. And of course it has some pretty good lobbyists to make it work for it one way or the other.

Finally, a man that made it his life’s work to tell us what we all were really thinking about issues ranging from the healthcare debate to every other issue – died at 81 years.

Alec Gallup was the scion of the founder of Gallop polls George Gallup. George started it up back in 1935 – when he began to ask about how well the government’s plans to get huge were sitting with the American voters. Alec continued the tradition running the Gallup organization for many years.

Neil George is editor of By George and Stocks That Pay You as well as the pending investment journal – The Pay Me Strategy.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

THE ETF SCAM

2009-06-17T15:43:00.002-04:00

THE ETF SCAM

When so many are selling something so hard – perhaps you should go and long and sell rather than buy.

By Neil George

Over the past few years there’s been movement to convince as many folks as possible to buy and hold Exchange Traded Funds more commonly known by the acronym of ETF.

And seemingly every fund management company has come out of the woodwork with ETFs that are supposed to provide investors with an easy means of investing in just about any particular market sector, index or even themes.

And over the past several months – these supposedly index-linked investment vehicles -have been repackaged and with the permission of US regulators have become more flexible and even managed – so that they’re not even indexed to anything.

And whether an ETF is linked to an index or not – they can of course also supposedly be created to perform at a multiple of what underlying basket of securities or index or even to perform in the opposite direction.

Billions upon billions of dollars have been spent on advertising and pitches to buy into this supposedly new form of investing.

The idea is that rather than having to actually pick out stocks to buy or sell – you can just buy an ETF and have it all done for you.

And as the pitches go – ETFs are really much cheaper than investing in a mutual fund – closed end or open end – because all the managers have to do is put together the ETF based on an index and let the market price them. So, its almost like investing for free.

Again – no wonder that so many investors – even supposed professionals buy and hold ETFs across many markets.

Because if you look at the literature - they’re cheap, easy and the modern way to run a portfolio.

Except that they’re not.

First, let’s look at the core of what makes for an ETF.

An Exchange Traded Fund might have a great name on the outside – but most investors will never ever be able to find out what’s actually inside them.

That’s because the folks that build and run ETFs will only release what’s really in them to the specialist traders that sign on to make markets in them.

While ETFs trade on exchanges and folks think that they’re buying or selling at the net asset values of the moment – the truth can be far and away different.

That’s because throughout the day – few folks actually know what’s inside the ETF’s underlying assets that are embodied what are called “Creation Units”. Each Creation Unit is what is used to deliver an ETF share to the market. And each share of an ETF really is just a share in the underlying real basket of assets.

And those assets can vary widely throughout the trading day and are not usually made up of actual stock shares – but rather a series of options, swaps, forwards and a host of other derived securities that only the specialists and the managers of the ETF know about and in the exact amounts.

Traders in the know love these things because they get to trade against the underlying basket of assets. So, they get to buy, sell, short and everything else that can enable them to arbitrage against the secret baskets of assets behind every ETF.

So, while you might think that you are buying or selling an ETF at the real value of the index that it’s supposed to be linked to – you really will never, ever know for sure.

And when it comes to less than current markets – say for foreign stocks or bonds – not only do you have the uncertainty of the underlying murky mix of derivatives that really back up an ETF – but you also have the uncertainty of what the supposedly basket of assets might be priced at.

In past years – I’ve seen some Asian ETFs trade at premiums and discounts amounting to over 30 percent away from what should be the real market prices.

So, not so easy are they.

But it gets worse.

While the performances of ETFs can track underlying indexes – they often underperform. And when you match up many ETFs against closed-end funds focused on the same or very similar markets ETFs tend to lag.

One prime example can be seen in an past recommendation that worked out quite well for my subscribers years ago in the Brazilian market.

I recommended buying and owning a closed-end fund called The Brazil Fund for years – selling it in 2006. the returns for that fund held for 5 years was just shy of 300 percent. Now if you had been reading my stuff back then and instead of buying my fund recommendation went along with an ETF supposedly tracking the Brazilian market trading as the Brazil iShare – you would have made money – but with less than half of the return of the fund and the market.

This lag in performance is bad enough for non-leveraged ETFs – but it can get even worse for leveraged ETFs and more so for ETFs that supposedly move in an opposite fashion to an underlying index or basket of assets.

Many folks have been sold the bill of goods that if they buy an ETF that’s supposedly short a particular part of the market that they’ll either have a hedge for their portfolio or even better that they just might make a buck if trouble hits.

And over the past year one market in particular that did get hit was of course the collection of US banks.

The ETF that is supposed to track the opposite of the leading index for US banks – the KBW Bank Index is run by ProShares trading under the symbol of SKF.

Over the past year – this index has lost over 63 percent. And how did the short ETF fund do? Perhaps a little gain? Nope.

It lost 50 percent. That’s right – the ETF that’s supposed to trade and be valued in the opposite direction of banks lost almost as much as the index that it was supposed to short.

Or how about when you wanted to trade oil on its recent near term rally over the past few months?

The US Oil ETF fund that’s supposed to track the performance of the underlying price of West Texas Intermediate Crude is pitched as the way to cash in that particular commodity.

So, as crude has nearly doubled since later February – the ETF has lagged big – by nearly 62 percent.

The key for all of the ETFs is that the longer the period of time that you look at their performance – the worse that they match up against their objectives.

If you were to look at any of the above ETFs on any given day – there is the greater propensity for them to track what they’re supposed to track. But as you move out from 1 day to 2 days and so on – the correlation begins to break down very quickly.

The lesson here is that while ETFs can make for great trading fodder for those that understand the real underlying asset mix of the underlying creation shares – there can be money made.

For the rest of us mere mortals – we’d all be better served to steer our portfolios away from the pitches of Wall Street and instead – follow the move by one of the biggest creators of ETFs – Barclays – which earlier this year dumped its ETF fund operations.

Neil George is editor of By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

WHERE'S MY CHECK?

2009-06-17T15:43:00.001-04:00

BG05062009

WHERE’S MY CHECK?

Why worry whether the S&P 500 is still on its way up or ready to retreat – when what you own keeps cutting you checks month after month?

By Neil George

Having regular checks coming in buys a whole lot of patience when it comes to a bad market.

With too many folks trying to guess or hope that the market has bottomed – the real way to prepare yourself for if and when they’re wrong is to make sure that you own enough of a base of stocks that pay you to own them.

Dividends are one of the surest means to make this all happen. And it doesn’t matter what age you are or where you are in your investment career – as everybody, and I mean everybody needs a large base of cash paying stocks for their portfolios.

Right now, there are lots of folks that are looking at some of the economic data of the US and trying to make the case that the worst is behind us. Even the May jobs data is being cited as evidence that things are better because only 345,000 folks supposedly lost their jobs rather than the expected or anticipated 520,000.

And with some surveys of the businesses including the ISM showing a slight up-tick along with consumers showing similar upticks in sentiment – there are folks that are calling on the National Bureau of Economic Research (NBER) to make the call that the recession is somehow over.

On the market front – no one is debating that the S&P 500 is at least for now in positive territory so far this year. But the key thing is what will keep it gaining rather than retreating.

For me – I can’t make bets on that with serious cash. Instead, I like you need to keep owning steady cash generators so that if the S&P keeps up with its long term history of crummy performance that I’ll still be able to keep paying my bills.

One of the groups of stocks that I have been writing about for many years and recommending that continue to pay you to own them are publicly traded partnerships or PTPs.

And in particular – I’ve been recommending two partnerships since I started my new publications in February that are doing exactly what you and I need for our own portfolios.

They are Linn Energy (NSDQ: LINE) and Enterprise Products Partners (NYSE: EPD).

These are on two sides of the energy market. Linn produces oil and gas from lower cost fields while Enterprise Products processes and transports petrol and its derivative products.

Linn and Enterprise have outgunned the S&P so far this just past the start of this year. Linn has a return of over 29 percent – while Enterprise has delivered a return of over 18 percent. This compares quite well even to a bounce in the S&P by muliples.

And along the way – dividends are solid and haven’t budged for Linn paying 63 cents quarter after quarter for the past year – and up from the prior years equating to a yield of over 12 percent.

Meanwhile, Enterprise being the ideal middleman in the petrol market keeps upping the payments currently running at around 54 cents giving you and I a yield of around 8 percent.

The key of course is that these partnerships have solid assets that keep generating cashflows. They have stress-tested balance sheets and successful game plans for keeping credit when they need it. And all along the way – even when petrol is that profitable for most – they keep chugging along.

These might be new to you – but they shouldn’t be for that much longer. For some of you that haven’t bought into a partnership I’ll go through the basics.

Partnerships also known as PTPs (Publicly Traded Partnerships) and/or MLPs (Master Limited Partnerships) are stock shares that trade on the major exchanges including the New York Stock Exchange (NYSE) like Enterprise or Nasdaq for Linn.

Unlike regular corporations with publicly traded stock, partnerships don't pay any corporate-level tax – rather they effectively pass through the majority of their profits to investors in the form of dividends.

Partnerships raise capital by issuing shares that are also called units. To qualify for partnership status in the US market – a partnership must receive at least 90 percent of its income from qualifying sources that can include a wide variety of businesses ranging from energy and other resources to real estate, infrastructure and a host of other heavy capital intensive industries and businesses.

Partnerships mostly are made up of two basic entities - limited partners (LPs) and a general partner (GP). When you buy a share in a partnership you become an LP owner - entitling you to the cash distributions that come from the basic operation of the partnership business. And of course – just like with a ownership of shares in a regular corporation – LP owners do not actively manage or control the assets of the partnership.

The management of a partner is done by the GP – just like management of a regular corporation is done by the guys in the executive suites and boardrooms of regular traditional public corporations.

For Partnerships - GPs are paid for running the operations for LP owners in two ways.

First, most GPs also own LP units and receive cash flows just like any investor.
And second - GPs earn what's known as an incentive distribution or dividend for their management duties.

The effect of the incentive distribution deal is that the higher the dividends paid to LP shareholders - the higher the management fee paid to the general partner. The idea behind this is that the GP has an incentive to try and boost distributions.

The bottom line is that partnerships simply another form of incorporating that enables companies with steady cash generating businesses to efficiently raise capital and distribute profits to us regular shareholders.

Now, some of you might have bought into a partnership or two way back in the ‘70s and ‘80s and have a bad memory of the experience.

As always – the US tax code isn’t always well put together and is fluid over time resulting in opportunities and pitfalls for those caught on the wrong side of Congress’ fiscal whims.

Back a quarter century ago the US tax law set up a great ride for the charlatans of the brokerage industry. Under the old IRS tax code – partnerships were able to pass through lots of depreciation and passive losses which not only could count against partnership revenues for tax liabilities – but also for other passive and in some cases active incomes for shareholders of partnerships.

This led to some wild times and way too many abuses. The result was that Congress finally stepped in and ended the fiasco and changed the laws that disallowed using the phantom tax losses against other non-partnership tax liabilities.

This meant that scam partnerships that were sold to shelter other income become worthless or even a liability for investors. And with all of the bad ones overshadowing the quality ones – the market went through the wringer and scams were outted, lawsuits filed and settled. But the genuine quality partnerships that weren’t just tax scams went on and continue to provide solid performance for investors.

Moving forward we now have a long history of tax law that has enabled quality partnerships to thrive with investors profiting and Uncle Sam getting his cut as well.

Now Partnerships do not pay corporate taxes like regular common stock companies as the profits are passed directly to shareholders that then have to pay tax on the dividends. This avoids the double-taxation of profits that has continued to be part and parcel of a regular common stock corporation.

In addition to not being subject to double taxation – depreciation also works to reduce the shareholder’s tax liability.

In the annual tax statement from the partnership’s GP and reported by your broker, bank or trust company will show the gross amount of the dividends that were paid to you as well as how much of the payment is made up of a depreciation allowance which can amount to as much as the majority of the dividends.

This is considered a return of capital by Uncle Sam and thus reduces the amount of income that is taxable. The catch is that the amount of the return of capital reduces your cost basis of your shares which then comes into play on any capital gains that you might and hopefully will have when you sell your shares in a partnership.

The statements of the dividend income and the depreciation comes not in the form of your regular 1099s - but rather in another very similar form called a K1. But just like with your 1099s – these should just go on to your accountant/taxman with usually no more fuss than with any other investment income tax reporting.

The key of course to all of this is that good partnerships are structured to cut you in on the profits much better than a regular common stock corporation and why they’re perfect for investors that like me want to own stocks that pay you to own them month after month and year after year.

Finally, some or many of you know that I was on the debating teams of my prep school and college. And while I was pretty good – I was no where even remotely close to the skills and victories of a man that died suddenly at 69 years.

Frank Harrison was on my college’s debate team and took it all the way to the National Championship in 1960 along with the help and guidance of a former fellow mentor of mine as well - Bob Connelly who died years ago.

Frank would capitalize on his debate training and experience to become a highly successful attorney as well as a member of Congress. And along the way he helped to serve many including his fellow debating team members that would follow him and his many friends including my father as well as his constituents.

His sister has noted that for anyone that might have known Frank that memorial contributions should be made to the Trinity University Debate Program, Department of Speech and Drama, One Trinity Place, San Antonio, Texas 78212-7200, attention Jarrod Atchison (www.trinity.edu) where Frank directed his own team for many years.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

RINGING THE RIGHT NUMBERS

2009-06-17T15:42:00.000-04:00

RINGING THE RIGHT NUMBERS

The business of rural phones can be very cash generous or cash gobbling. Here are two that pay you and two that won’t.

If you were to look at your monthly checks that you cut to companies providing communications it might end up being a bit of a shocker of a total.

All of us have expanded our demands to be able to speak with, text to, email with, gain access to the internet as well as receiving evermore entertainment and other content.

And we want all of it – all of the time.

In our offices, homes, on the road, on planes, trains and every other place. And if we can’t get and keep connected – well, we won’t be happy campers.

And we’re willing to pay for it.

Over the past 15 years – communications and related content delivery companies have seen a continuing surge in services demanded and paid for by everyone. Think about it – back in the early ‘90s – you had basic landlines and perhaps a cellphone the size of a small brick and perhaps cable television.

But now, more likely you have landlines, multiple cell phones, smartphones, data connections for your laptop as well as data connections for your homes, cable, satellite and many other subscription services that quickly add up to hundreds of dollars a month for households.

And for businesses – the bills very quickly run into the thousands and many thousands each month and every month. And since the early ‘90s through the last current calendar year – the growth in spending has soared by nearly 200 percent on a national average as tracked by the US Bureau of Economic Analysis (BEA)

This is an interesting industry to be in. For there’s cash, lots of it – and that cash keeps coming in month after month and year after year – making for a very nice and steady stream of revenues that you can bank on to build and maintain a very lucrative business.

But there is a catch. You have to keep investing in capital expenditures to maintain the services that you have – while also investing to build and expand to meet new and expanding demand for services. And in many markets – there’s plenty of competitors that are just itching to poach some of your very nice cash cow customers.

Running a business in the communications world therefore comes down to maximizing revenues while controlling costs and keeping and building customer bases.

There are markets that have plenty of steady customers – but with less direct competition. Rural areas around the nation offer different market conditions than urban centers. Fewer providers means less competition and not only potentially better pricing power – but also stickier customers. More certainty that the cash will keep coming in not just over months – but years.

And there is an added benefit – Uncle Sam Incorporated is eager to see rural markets better served.

Back in the Franklin Roosevelt Administration – the US Department of Agriculture and its Rural Development Division began a major public investment to provide a host of utility services to households and businesses that were underserved by private companies more focused on urban areas.

By providing underwriting and cash subsidies – rural communications providers sprung up around the nation – often being local operations. This continues through today and has expanded considerably in recent years.

In 2005, the government expanded its mission to subsidize not just landline and wireless – but also higher-speed or broadband data transmission capability throughout the rural markets of the US.

And in the recent additional expenditures including chucks of the Stimulus Package Legislation – billions upon billions of Uncle Sam cash is continuing to flow to companies providing and expanding communications in rural areas.

So, the bottom line is that this is a market that has lots of steady customers and lots of Federal cash and credit to keep it going and expanding.

The result has been a move to consolidate many of the local companies serving rural markets. Over the past several years – companies have gone public and have acquired local service providers. In addition, in markets where the major Baby Bells have been operating – rural focused companies have been buying out local rural services as the Baby Bells have been increasing focused on what they see as there core markets in urban areas.

I got involved in this market years ago as I recognized that there were plenty of these companies that were operating good businesses with lots of cash and were paying out large cuts to investors.

But like with any industry or market – even good ones like rural services – it comes down to finding the right companies rather than just the right segment.

The key to investing in the right company comes down to finding management teams in markets whereby they can maximize cashflow while controlling costs. And not just doing acquisition deals just for the deals’ sake.

In addition, landline customers are contracting around the nation from urban to rural markets. With alternative communications products and services – every telecom company has to minimize losses of landline revenues with growth in other alternatives to keep the cash coming in.

This comes in two ways. First, add additional services – from wireless to higher cost data and entertainment and media services. Second, buy up other markets at a faster pace than what is being lost to declining demand for landlines.

The first is harder. For it involves improving services and sales as well as additional capital expenditures. The second can be easy in the shorter term – but it comes with lots of costs – including overpaying for customer bases and the costs of integrating the acquired customers into the existing businesses.

There are two companies that continue to prove out on both approaches and two that should be avoided.

On the buy side – there’s Otelco (NSDQ: OTT) and Iowa Telecommunications (NYSE: IWA). On the sell side – there’s Fairpoint Communications (NYSE: FRP) and Frontier Communications (NYSE: FTR).

Otelco is based in Alabama and has operations in rural markets in that state as well as in central Missouri, select areas of Maine and Massachusetts and West Virginia. The company is a cost container – one of the better ones and continues to grow overall revenues by an average annual rate of over 20 percent. Margins are fat with gross running in the 63 percent. And more importantly – it keeps lots of cash on hand and controls debt with a debt to assets running at only 76 percent.

For investors, the company’s shares are structured as an Income Deposit Security (IDS) in which each share is made up of one common share of stock and one intermediate corporate bond.

The dividend is made up of cash from operations paid to the common stock and the interest coupon paid to the bond. That gives us a lot more certainty and security of the dividend – while also continuing to focus management on serving shareholders.

Paying a rock-steady dividend of 42 cents – the yield is running in the 13 percent range and should continue to be bought under 16.

Iowa Telecommunications operates as its name implies - throughout the state of Iowa. It has a decline rate in local landline services running at an average annual rate of 3 percent – yet, like Otelco, it continues to ramp up additional data and bundled services for both households and increasingly to business customers resulting in overall revenue gains in these complementary and off-setting services amounting to average gains of 20 to 40 plus percent.

And also like Otelco, it’s a cost controller with heavy gross margins in the 60 plus range and less debt with debt to assets running only in the low 60 percent range.

This well-focused rural operator pays steady every quarter and has kept paying 40.5 cents giving you a yield from its regular common stock of just shy of 13 percent. It’s a buy under 16.

First on the sell side is Fairpoint. It’s been on the sell side from me for the last few years stemming from a grave departure by management away from shareholders.

This company continues to me more focused on acquisitions rather than local business growth. The results have been that the company has entered into a series of deals that have come at too high a cost and have resulted in a debt strain that potentially puts the company at risk for bankruptcy.

Two deals in particular are responsible for the continued slide. Both have been bought from Verizon – one in Maine and the other in Vermont. In both cases – the company failed to do enough diligence to determine what they really were buying – including antiquated switching systems and not all of the business customer base.

Adding to the troubles were local union leaders that saw the deals as threatening their power. With Verizon – the unions could always threaten other major markets to get want they wanted. But with Fairpoint – this leverage would be reduced.

The campaign against the deals led to the local Public Utility Commissions resulting in Fairpoint making major concessions including cutting back on dividend distributions.

Now as the deals have been done – revenues are lacking and capital needs are outstripping the potential of the company to fund them. Dividends are now suspended and debt rating agencies are now finally weighing in with downgrades and negative outlooks. This should be sold or avoided.

The other sell side rural operator Frontier Communications has been following a similar and increasing aggressive deal making campaign over the past few years. And while not as initially challenged as Fairpoint has become – its debt load particularly with maturities in the next couple of years will be challenging to rollover.

And with local landline business attrition – other services are not expanding as rapidly as Iowa and Otelco have been able to generate. This puts its dividend further in jeopardy and is why I am recommending selling and avoiding Frontier.

Neil George is editor of Stocks That Pay You and By George.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

25-BUCK BARGAINS PAYING 14 PERCENT

2009-06-17T15:41:00.001-04:00

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25 BUCK BUYS PAYING YOU AS MUCH AS 14 PERCENT

You and your portfolio don’t need drama right now – you need sold and simple stocks that pay you.

By Neil George

Everybody is getting all ecstatic over the pitch that the economy is fixed and on the rebound and that the stock market is back running with the bulls.

Now, it might well be true – and nothing would please me more than for all of us to be headed on to better times and market booms. But I’m not remotely ready to bet the farm on it – and nor should you.

My way of investing doesn’t need bulls or bears to work. I don’t have to worry about whether the Dow or S&P 500 is up, down or sideways today, tomorrow or next week.

Instead, by buying stocks that pay me to own them – all I have to make sure of is that I stress test them enough so that I can sleep knowing that the companies behind them will stay in business and that their checks will keep coming my way.

Even better, if I can own stocks that don’t just pay a good dividend – but have to pay a good dividend it ups the certainty factor for my portfolio.

What kind of stock not only pays a good dividend – but is actually contractually and legally obligated to pay a good dividend?

Stocks that no one on television or in the financial papers has ever mentioned. And for me – if it stays that way – you and I will be all the better for it.

Anonymous to me is the new synonym for profitable.

For if I can buy stocks that no one touts and that have to pay me every quarter or ever month a fat dividend – I can just keep humming along knowing that my portfolio is paying my bills and quietly growing its balance.

So, by now you should want to know what are some of my stocks that have to pay you and are nice and steady.

Ok. First, they look like stocks, trade like stocks – mostly on the New York Stock Exchange (NYSE). But second, they really are bonds – even if few really ever notice – including your broker.

Bonds are supposed to be for the big guys. You know – the mega financials, insurers, pension funds and the like. But there is a corner of the stock market that actually continues to bring bonds back to the reach of the individual investors.

But there are bonds that look and trade just like regular stocks. And rather than being like traditional bonds with typical 1,000 dollar pieces in lots usually traded in the tens of thousands or millions – these trade in more palatable sums with face values of 25 bucks or less.

Now here is where I need to roll out some of the fine print on these bonds that look and trade like stocks. And the fine print is that they have various acronyms by the banks that put them together and brought them to the market.

I’ll start with one of them called Trust preferred securities (TRUPs). These are stocks that have been quietly trading for quite a while, yet haven’t been on most investor's – let alone brokers’ radar because they're just not widely touted by anyone.

Behaving much more like preferred stocks, regular everyday companies including big utilities and many other industries essentially issue them to bank holding companies which then package them up as a trust and then issue them to investors in the markets just like a stock.

The bank holding company then uses the funds to invest in bonds from the issuing company. Those bonds typically have intermediate to longer maturitiess and the cash flow from the bonds is what pays dividends on a TRUP.

That creates the advantage for the issuing company of being able to treat the TRUP stock as equity for its balance sheet without having to register the issue with the SEC, but the IRS lets the company treat the dividends as debt that allows it to reduce its tax liabilities just like regular bonds.

So the investor benefits from the steady dividends and the advantages and security of owning a bond and the company gets access to cheaper after tax capital.

There are a plethora of these issues as well as other varieties of these easy to buy bonds that can be called other acronyms including PINES (Public Income Notes), QUIBs (Quarterly Interest Bonds) and others in the market.

But what makes them all similar is that they’re issued in sums typically amounting to 25 dollars with calls by the issuing company at their issuance price – again typically at 25 dollars. The key then is to understand the credit of the issuer, know the current price of the TRUPs and then know the yield to the call price as well as the call dates.

The result is that you and I can put together a collection of these bonds from a variety of industries that pay us quite well – with yields running for most at between 7 to over 14 percent.

And even better, even though these trade like stocks on the NYSE – they tend to be very steady in price – even when the stock market is in a tizzy of trouble mostly because nobody in trading rooms or hedge funds knows about these – and that’s again perfect for us.

One more thing to note – because these are brought to the stock market by banks – some of these can have their names shortened and can actually have the name of the bank bringing them rather than the company behind them. So, don’t get spooked – just look behind some of the names on the stock tables to find the real issuer.

How about some examples of these bonds that trade like stocks?

I’ll start with an easy one from the giant US telecom company – Verizon (NYSE: VZ). The A-rated issuer has a TRUP trading under the symbol of PJL on the NYSE with a dividend of 7.625 percent due in 12/01/30.

Trading pretty consistently in the just shy of the 25 buck range – the yield is running currently at around 7.8 percent. I see this paying you a steady and solid dividend rate that trumps the dividend from the common stock and the regular bonds by a whopping margin.

Next is an issue with a bit more in yield from another telephone operator with regulated phone lines based in the Kansas side of Kansas City in Overland Park. Embarq has it’s 7.1 percent due 06/01/36 TRUP which trades on the NYSE under the symbol of FJA. The bond continues to trade a bit more up and down that the Verizon issue in mid to upper teens – giving us a yield bargain.

The result is a current yield nearing 10 percent payable every June and December. A newer issue – it’s not callable until June of 2012 which would be a huge gain for you at the current price in the market.

Verizon isn’t the only Baby-Bell to go to the NYSE for some of its bond issuance. Qwest (NYSE: Q) has had a pile of issues – but still maintains an impressive chunk of telecom assets in a crucial section of the US market.

I see the credit prospects of this utility being good enough to sustain the cash coming from the company’s TRUP trading under the symbol PKH. The bonds are the 7.75 percent due 02/15/31. They continue to trade positively – in the mid-teens dollar range. Callable like the others at 25 – so we have only upside if that were to occur. The yield therefore is a big one – currently over 12 percent.

Last up in my examples of these stocks that pay you comes from my favorite airline holding company – AMR (NYSE: AMR).

The holding company for American Airlines has a PINE trading under the symbol AAR paying 7.875 percent. Trading around 13-14 dollars apiece they’re generating a another huge yield of over 14 percent.

And while many might question the stability of owning a bond from an airline – note that the company continues to pay its bills, and has continued to prove that it can rollover credit lines and bonds and has continued to have ample access to new leases and other new lines of credit.

Finally, a man that liked to provide quality at a bargain price died at 78 years. Norm Brinker liked to sit down and enjoy a good meal. But at the same time, he didn’t like much of the fuss of formal restaurants – including the prices. So, he came up with an alternative and founded not just a collection of companies – but an industry now known as casual dining.

His legacy can be found in cities around the US and well beyond with names including Steak & Ale, Bennigans, Chiles – all park of Brinkers International (NYSE: EAT).

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

INVEST IN UNCLE SAM INC.

2009-05-29T18:19:00.000-04:00

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INVEST IN UNCLE SAM INCORPORATED

The biggest investor isn’t a Warren Buffet, Bill Gates or George Soros – But Uncle Sam and his US Government Incorporated.

By Neil George

Now for a while now I’ve been writing that some of the biggest and best bets for the general stock market might well not be found in the private sector – but rather investing in what I call Uncle Sam Incorporated.

The US Government.

Now, I know that Uncle Sam doesn’t issue publicly traded stock and yet the government does issue bonds – which in my weekly Stress Test found at the www.stocksthatpayyou.com website I just outlined that I wouldn’t be a buyer of right now.

But at the same time – it’s interesting and perhaps a bit more disturbing how quickly and with such size – that the US Government has been acquiring ever larger stakes in what used to be some of the biggest companies in the world.

Let’s start with American International Group (NYSE: AIG). This mega insurer and financial is now 80 percent owned by Uncle Sam amounting to an investment of around 180 billion dollars. Not all in direct equity – but still a significant amount of capital has been contributed by the US Government in this company.

And as the government has been making its inroads into this company – its been grabbing control over management with 5 of the 9 board members effectively chosen by the West Wing.

Then let’s move on to Citigroup (NYSE: C). This used to be the biggest of the big global banks. While not as big as it used to be – that hasn’t stopped Uncle Sam from grabbing some 33 percent of its capitalization amounting to around 50 billion dollars. And like AIG – the West Wing has made it’s mark on management with 4 directors coming one way or another from the government’s choice.

How about some of the consumer and other financiers in the US? GMAC - that is not a listed company and used to be called General Motors Acceptance Corporation – now has some 35 percent of it owned by the US Government amounting to what nowadays seems like a paltry sum of only some 12 to 13 billion bucks.

As for control of the company – Uncle Sam has been a bit behind in his directives as only 2 board members have been selected by the West Wing.

Then there are the two automakers. Chrysler – on its way to becoming an Italian company – has 8 percent locked up by the US Government costing Uncle Sam the bargain price of 12 billion. But even with a smaller stake – the West Wing controls 4 of the 9 board members.

And the company that’s making all the news – General Motors (NYSE: GM) might well have Uncle Sam taking as much as 70 or so percent of it – costing 50 or more billion. We already know that the CEO was replaced by the West Wing and the board of directors are made up of 5 of the 13 picked by government hands.

Really, is this anyway for a free market economy to operate if the government is the big owner and controller of an increasing number of the leading companies?

Even this week – we have Bank of America (NYSE: BAC) announcing the departure of a long-standing board member that has been on the executive committee. Temple Stone was one of the board members that fought tooth and nail over the West Wing’s desires to make CEO Ken Lewis step down from his spot as chairman of the board. Temple lost as did Ken – and now it seems that Temple has been kicked to the curb as well.

I wonder how that happened?

This comes as Uncle Sam’s Treasury Secretary – Tim Geithner is winging his way over to China to meet with the government in Beijing. It will be interesting how he tries to tell the Chinese how they need to me more market friendly while back home Geithner and the rest of the guys from the West Wing are grabbing more and more of the public market and putting into the hands of Uncle Sam.

But as investors this isn’t as disturbing as it might be. Instead, it continues to play into one of my strategies for getting your portfolios back on better footings in this very challenging market and economy.

One strategy is to buy into the companies that aren’t yet controlled or owned by Uncle Sam – but have Uncle Sam as some of their best customers.

From healthcare – to defense – there are plenty of companies that you need to own that are making good money as federal dollars and contracts keep coming their way.

Defense in particular is quite interesting. Did you see the durable goods numbers for the last month?

The data released by the Commerce Department showed a gain of 1.9 percent. Now as the cheerleaders in the West Wing were popping corks – the bad news was that without defense contracts the real number was still a sagging minus 2.1 percent.

But lets look at the positive – buy the defense contractors getting the contracts and the durable goods orders. One to note continues to be Long Hauler favorite of mine – General Dynamics (NYSE: GD).

And for more – I’ll be posting some of my other core favorites in the days to come.

Lastly, there are two housekeeping notices that I want to make you aware of. First, for those reading this on www.neilgeorge.blogspot.com note that this is just one part of what I am currently writing and publishing. More can be found at www.stocksthatpayyou.com. And on this site, I would encourage you to sign up for my alerts and notifications as well as to post comments on my writings.

Second, one of the sections on the stocksthatpayyou.com website is called my Stress Test. Every week I go through a particular segment of the markets – from individual companies and funds to whole market groups of securities and outline the real and potential threats that they might pose to investors. I would encourage you to read this section and in coming weeks if readers like – I’ll be emailing it to you just like I do for subscribers to By George.

Finally, a man that didn’t quite like the lack of choice on the proxy votes for Uncle Sam’s leadership teams around the nation – died at 80 years.

How many of us would like to have a little more say on proxy votes for board members of the companies that we invest in? But here’s the thing – while we have little real voting power on who gets to be on the boards of directors of public companies – we arguably have the same trouble when it comes to political leadership elections.

Think about so many of the past elections whereby we really didn’t think much of any candidate. Our choices often come down to the lesser of two evils. But what if we could have a third option when voting for elected posts from mayor to congressman or even president? No, I’m not writing about independents and third party candidates – but rather a choice of none of the above.

That’s exactly what Luther Knox wanted to put on ballots around the nation starting with his own state of Louisiana. He saw that there really wasn’t a choice of none of the above and fought the courts to have it as a legal choice on ballots. He didn’t get his way – but perhaps, just maybe, someday?

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

BANK ON IT?

2009-05-22T15:15:00.001-04:00

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BANK ON IT?

While everybody else on the street is buying bank stocks – you should of course do the opposite and back up the truck on debt.

By Neil George

Ok – so Bank of America (NYSE: BAC) sold some stock. In fact – not just some stock – but lots of it. 13.5 billion dollars worth was dumped on the public this week.

Now, more likely you didn’t beg and plead with your broker to get you in on this deal. Nor did you likely try to get in on the 2 plus billion that US Bank (NYSE: USB) did last week.

And you will be seeing a plethora of these new stock sales in the coming days and weeks as banks try to cash in on the bit of a respite for the general stock market to try to cash out of the US government’s grips on their executive suites and board rooms.

It seems that some folks just aren’t as excited about inviting Uncle Sam onto their management teams. Look how well it went for executives at Chrysler, General Motors, AIG, Bank of America, Fannie Mae, Freddie Mac and plenty more companies that the West Wing decided needed their expertise at running their companies.

Now sure, I’d be one of many that would argue that these and plenty of other companies have needed management changes for quite some time.

This is even hitting the US Securities and Exchange Commission (SEC, www.sec.gov) which is trying to hold on to its existence as the West Wing is moving to create a new monster regulatory organization that could supersede both the SEC as well as the Federal Reserve Bank (Fed, www.federalreserve.gov).

The West Wing isn’t content that the SEC is indeed moving to allow shareholders of all folks to actually affect decisions as to who actually sits in the board rooms of public companies.

Like I mentioned in my Notebook the other day – the SEC is moving to allow shareholders of mega companies that have 1 percent ownership (3-5 percent for smaller companies) to actually put forward proxy votes – including board membership.

Now I don’t know about you – but it’s rare for most of us mere mortals to grab 1 percent of a company. So really will this actually do much for us as investors?

Not really.

Instead, what it does set up is the ability of pension funds – especially of those funds run by the big contributors to the West Wing – to run companies.

We’ve already seen us mere mortal investors get shoved to the curb by the West Wing in the reorganization of Chrysler. And the re-org of GM will be much, much worse – as shareholders and bondholders are being directed to give up their rights in favor of the UAW again.

And if they don’t – well then – there are some guys with earpieces in their ears and dark glasses over at the White House that will make them an offer that they can’t refuse.

So, if you were running a bank – wouldn’t you want to get as far and away from the government as possible?

TARP cash is being repaid. And as the preferred shares are being bought back – the warrants that were the equity kicker part of the deal are also being sold back.

Forget Black-Sholes to value these things – somebody actually got some lobbyists working and the current Treasurer agreed to let the banks off on the cheap for the warrants.

Perhaps because as I wrote the other week – the West Wing while poking its noses into corporations – it has yet to actually do its real job of filling all of the positions in the Treasury as well as plenty of other agencies and departments. So, the current Treasurer might have been overworked when he cut some of the prices for the warrants.

But the bottom line is that banks are getting common equity to replace the preferred stock. This has two major bits that should interest you. First, it changes the capital structure of banks – reducing leverage and improving the balance sheets.

Second, the TARP preferred shares were costing banks a 5 percent fixed dividend – which now goes away. A lower cost of capital frees up cash for other purposes.

Here’s my pitch – now is the time to buy bank bonds and bond-like preferred shares.

The TARP preferreds are gone – but the underlying FDIC (Federal Deposit Reserve Corporation, www.fdic.gov) credit wrappers on much of the bank debt out there isn’t going away.

So, if you’re a bigger bank, not a thrift like BankUnited of Coral Gables, Florida, then you get free underlying credit guarantees and no more poking around the executive suites.

For us as investors – we get the big cashflows that are still out there that is what we all continue to need. Stocks that pay you is always my mantra – and for the banks – this means some of my favored preferred such as the FirstBanks of Saint Louis (NYSE: FBS A) paying 8.15 percent and yielding over 12 percent. Or how about Regions Financial (NYSE: RF A) paying 8.875 percent yielding again around 12 percent.

On the mini-bond front – love him or not – Ken Lewis seems to be a survivor if by slim margins in his battles with the West Wing. Why not try his minibond trading on the NYSE under the symbol IKM. It’s a bond with a coupon of 5.875 percent yielding over 8 percent at a nice discount. Or another to look at is from Goldman Sachs trading again on the NYSE under the symbol JZS. It has a coupon of 5.8 percent – again at a big discount to yield over 8 percent.

Finally, a man that many at the track could bank on year in and year out – died at 76 years. My grandfather loved the ponies. While not owning stables – it didn’t keep him from his favorite pastime – betting on them.

He knew the horses and the jockeys and was always up for a trip to any near by or even not so near by tracks. And while he never did mention Bill Passmore – I’m sure that he saw him ride into the winnings at least now and again.

Bill was a jockey. And not just a jockey – but a winning jockey. His tally was over 3,500 races won generating winnings of over 23 million back in the days when millions meant something.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

JUST DO YOUR JOB

2009-05-15T15:02:00.000-04:00

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JUST DO YOUR JOB

How about we get the guys in Washington to just do their regular jobs before that start to branch out in the wrong areas?

By Neil George

Government regulation is a good thing. For just like we all need to have and abide by traffic laws to keep all of us moving along the highways and byways – from food safety to financial market stability – there needs to be some basic rules of the road to keep society and the economy humming along.

The trouble is that it seems that the guys in the West Wing as well as those up on Capitol Hill seem to be more interested in coming up with new things to regulate – before they actually just reach proficiency at enforcing the existing rules.

And this of course makes sense. For if you’re a politico – your job is to either get re-elected or appointed to keep or get more power. And just sitting down and doing the job as a government official or representative just isn’t as fun – nor does it get you much press and attention.

Instead, what gets you on the front pages of the papers and gigs with talking heads on television is to rollout new initiatives and new proposals – even if you have all the rules and programs already in place that address the same issues.

Let’s take a look at the new replacement for the director of the Center for Disease Control (CDC) in Atlanta. The man in the oval office picked Tom Frieden.

Now you might not recognize the name unless you happen to hail from New York. It was in New York as the Health Commissioner that Tom started to go berserk with new regulations bent on dictating how law abiding taxpayers should live their lives.

While he could have been focused on countless cases of food and beverage contaminations around the city and cracking down on abuses in the wholesale food supply and distribution industry in the City – or just focusing on water safety – or how about just dealing with dog and other licensing – Tom decided that none of the core responsibilities were exciting enough.

So, he went on a crusade to restrict the freedom of commerce and free choice that now means that when I’m in the City I have to set outside with the millions of others to enjoy a cigar rather than inside at one of my clubs or other facilities.

And when that wasn’t enough – Tom then went on to go after folks like me that enjoy eating and good food. Tom thinks that if you look prosperous then something is wrong and government has to step in.

So, go after fatty foods and restrict fats used to make glorious frites to go along with a nice New York Strip.

Now, he’s headed down to Atlanta – and who knows what kind of new rules that he might be dreaming and scheming to inflict on us unsuspecting and innocent voters and taxpayers.

The same thing can be said of the ramp up of West Wing involvement in the financial markets.

Already the man currently sitting in the oval office has dictated who runs and who will not run General Motors and Chrysler Motors. And he’s also moved to change the legal system for creditors involving both companies – literally stealing assets from bond holders and creditors and giving it to union leadership.

And on the banks – he and his pals worked to kick Ken Lewis out of his spot as Chairman of Bank of America – and that’s just the beginning.

As of yesterday it seems that the West Wing is trying to go through and replace members of the board of directors of Bank of America with its preferred folks.

And for that bank as well as the rest in the US – there is a move to place restrictions on salaries and other parts of compensation plans for employees of banks and other financials.

Who knows – perhaps the next time that you need to work on your contract or even find a new job – you might have to get Federal approval before you can do anything.

Meanwhile – why don’t we just use the rules that we already have to guard against financial issues and capital risk. Use the power of the FDIC, OCC, SEC for banks and other public companies to just enforce the rules of the road that haven’t been enforced resulting in our current state of affairs.

And for insurers – this is a market that isn’t in the Federal purview – but rather in the hands of state insurance regulators. So why are we all of a sudden using Federal cash from the TARP program to help out a collection of 6 insurers?

Again – let’s just have our regulators and government workers just sit at their desks and just do their jobs. Less chatter with the media and more work might just keep what must be idle minds from doing the devil’s handiwork.

Finally, a man that did his job even in some of the most threatening conditions – died at 67 years.

Many continue to compare the Vietnam War with the Gulf War II and hope that the West Wing of the White House doesn’t repeat similar policy errors that led to our leaving in a lurch.

The photo that sums up how we wrapped up Vietnam is one of those iconic ones, That of the Huey helicopter on the roof of our mission in Saigon with countless folks climbing a ladder trying to flee. The man that was on the ground and took that photo as well as many, many others in even more hostile zones was one of the greats of journalism – Hugh van Es.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

BANK WITH UNCLE SAM?

2009-05-13T17:45:00.000-04:00

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BANK WITH UNCLE SAM?

The US Government is becoming the banker of bankers – is this a good thing?

By Neil George

Uncle Sam has a deal for you. Open a new checking account with his bank with direct deposit and get a new toaster. Add to that a few CD’s and you might be the next winner of a free trip to Hawaii.

And don’t forget to ask about Uncle Sam’s deals on home equity and auto loans – easy terms with no up front fees.

Is this what’s coming our way over the next several months when it comes to the banks of the nation?

The current administration continues to move further and further into the business of banking. Already we have Uncle Sam owning hundreds of billions of dollars worth of preferred stock in banks around the nation. And with warrants giving them long term calls on common stocks of these same banks – the distinction between public and private ownership is quickly slipping away.

Yesterday it was leaked that the West Wing was working to use its shareholder rights to try to flex its muscles with bank management. The current president is rumored to want to limit pay packages including incentive pay for banks – regardless of whether they’re in jeopardy or even in receipt of TARP cash and capital.

Scary right?

And with the recent slap-down of bond holders and stock holders in Chrysler and soon over at General Motors – the market indeed needs to take some of these threats very seriously.

Right now, banks have a series of programs that have been pushing government capital their way.

We started with the US Federal Reserve Bank which has ballooned its assets via several easings of rules over what kind of assets can be posted for loans and reserves. Then we’ve added to that the direct lending via securitized and whole loan assets from banks.

Then we continue with the TALF – or Term Asset-Backed Security Loan Facility. This is another wave of hundreds of billions in which actually works to bundle consumer loans into securities in which then are effectively purchased by the US government.

And we’ve just begun to fire up another great acronym – the PPIC – Public Private Investment Corporation. This is where bad assets of banks are sold to the public with loans funded by the US government and credit guarantees if the loan assets actually end up losing money.

Oh, and one more thing – the FDIC is providing insurance for bank bonds issued – all on top of the expanded insurance for deposit liabilities of the banks.

Summing it up – Uncle Sam has preferred stock and calls on common. It has ownership and loans of trillions of dollars of bank assets and it’s moving to dictate who manages the banks and compensation of the management.

Is this a good thing?

I for one – would have preferred the way that we dealt with the last major credit and bank fiasco in the ‘80s whereby the government just seized the banks and sold them off and was done with it – and in the process kept the private sector running and owning the banks.

All this said – it seems that Uncle Sam wants the banks to continue to hum along – if only to a new band leader.

And for those that do cite the fact that some more than 30 banks have been seized and sold over the past several months – the distinction continues to be that if the bank is a small community bank with assets in the sub-500 million – then they’re politically expendable. Otherwise – no seizure and instead, Uncle Sam takes a piece and keeps everything up and running.

This means that if we look at the banks that have Uncle Sam Capital – we can see some potential gains by investing along both in bonds and preferred stock. The downside risk is that the current administration could of course change the rules on existing financial contracts and loan and bond covenants.

Yet the downside protection against this would be that if that were the case – the credit and market conditions of the fourth quarter of last year would look like good times compared to how Wall Street would react.

A couple of preferreds that I’m eyeballing including FirstBanks – out of Saint Louis. No common stock – just preferred out there – look at the 8.15 percent preferred currently yielding around 10 percent. It trades on the NYSE under the symbol FBS A.

Then there’s preferred from Regions Financial. I’ve covered the government’s stress test of this bank as well as my own. It has an 8.875 percent preferred trading under the symbol RF Z on the NYSE that’s yielding over 11 percent.

On the bond front – there are plenty of my favorite easy to buy and own minibonds issued by several credible banks. Two in particular worth peeking at would included the Bank of America 5.875 percent bond trading on the NYSE under the symbol IKM yielding near 9 percent and the Goldman Sachs 5.8 percent minibond (NYSE: JZS) again trading at a discount to yield near 9 percent.

Finally, a man that was Uncle Sam’s banker of bankers – died at 88 years. Bill Seidman was a very bright guy from a family with a prominent business in the financial markets. And he could have made further fortunes many times over – but rather he sought to serve.

Bill’s government service came at the local and state level and quickly moved to the Federal level. Joining President Gerald Ford – Bill was the President’s economic advisor during a very turbulent time.

After a hiatus during an interim administration – Bill returned to National service in 1985 when he was appointed by President Ronald Reagan to head up the Federal Deposit Insurance Corporation (FDIC). Bill’s new appointment came at a crucial time as the thrift crisis was just getting ready to really fire up. In fact, it was Bill that was one of the principal architects of the Resolution Trust Corporation (RTC) which unlike today’s bank crisis – was very direct at getting to the root of the issue.

Under the leadership of Bill – the RTC and the FDIC (after the de facto absorption of the FSLIC – Federal Savings and Loan Insurance Corporation) seized and shut down 747 or so thrifts amounting to nearly 400 billion in assets. Then they sold off the assets and had the whole thing wrapped up in not that many years.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

WHAT YOU CAN'T SEE

2009-05-12T19:44:00.001-04:00

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WHAT YOU CAN’T SEE

You know the old adage of what you can’t see can’t hurt you?

By Neil George

Just don’t make me look at it. No, I meant it. I’m not going to look. And if I can just keep myself from seeing it – maybe it just might go away and leave me alone.

Now, you might be thinking that I’m talking about your bank, brokerage and/or pension fund account statements. And sure, that is one strategy that is being used by perhaps too many folks that would just rather not know how badly that they have been harmed by the economic and market mess out there.

But instead, I’m talking about one of my favorite subjects – the environment. I love the environment. Few things bother me more than seeing the air, land and water contaminated by pollution.

Because to me – if you’re making me have to breath air contaminated by soot or watch my water supplies clouded by various contaminants or worse made hostile to life with mercury emissions – then you’re no better than a common thief trying to mug me for my wallet or try to get through my security systems of my homes.

But what’s worse perhaps is not when coal companies release who knows how many thousands upon thousands of gallons of tar ash into water supplies. Or when chemical companies sneak what they claim is treated water into discharges into streams, rivers and lakes.

Rather – it’s when the regulators and government administrators knowingly abuse by either allowing contaminated water to enter our pipes and into our businesses and homes – or blatantly – actually knowingly put the tainted and contaminated water into our homes and businesses.

I’ve written about this countless times – but the US Environmental Protection Agency (EPA) continues to report that in any given month – hundreds of municipal water supplies are contaminated with some bits of chemicals or bacteria that is above standards. And within those hundreds are 50 or more that are so dire with contaminants – that the water should be deemed as undrinkable.

Take for example the current story of Crestwood, Illinois. This community water supplies are run by the municipality. And up until several years ago – the Crestwood water services were pulling water from a combination of supplies from Lake Michigan and local wells.

But since the underground water supplies were identified years ago as being contaminated with carcinogenic chemicals – the water company was restricted to only using Lake Michigan and was forbidden to use wells.

But since there are limits on pulling from the Lake and the costs were higher – the company thought that they could just add a little bit from the wells as no one would really be the wiser if no one told on them. Well, that worked for a while – but as more and more locals became less healthy – it didn’t take that long before the EPA actually did its job and rolled into town.

And after looking at samples – the EPA raided the offices of the water company and found out the whole story.

There are more likely countless other similar situations of varying degrees around the nation. And as such – it shouldn’t be surprising that there is a part of Uncle Sam Incorporated that is actually funding the rebuilding of water treatment, transport and distribution systems. Billions upon billions – with 8 billion alone for just some pipe projects are in the process of being rolled out.

So, here’s yet another example of how I come up with the companies to invest in behind the news.

The next step is to look at the various components of the water infrastructure market – from pipes to pumps and treatment mechanicals. And there are plenty of them.

One to take a peek at is Pall Corporation (NYSE: PLL). This a company that provides the filtering systems and components for water treatment plants and facilities. So from biological to chemical as well as even for salt water – this is one that’s getting more and more Uncle Sam cash coming its way.

There are plenty of other companies that I’m following – and you be reading more about these in the coming weeks.

Finally, guy that knew what you couldn’t see could hurt you died at 89 years. Hans Holzer was a ghost hunter that loved to poke around anything haunted – including a house that made a town in New York famous or infamous depending on your perspective called Amityville.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

OUT THERE

2009-05-11T19:49:00.000-04:00

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OUT THERE

Ever ask yourself “what were they thinking?” after something big happens that seems so obvious after the fact - but evidently didn’t then?

By Neil George

It doesn’t matter whether we’re talking about the markets, politics or life. Common sense isn’t always onboard when too many folks are making choices that can end up costing them and others dearly.

The infamous Darwin Awards some immediately to mind. In case you aren’t familiar with this award – it has nothing to do with the political debate over evolution – but rather it takes a very dark humor and macabre look at how some folks that are really out there end up bring their own demise by making some of the dumbest decisions.

And in bringing their own demise – it makes the argument that it might well be better off for the continuing development of the human species if these guys are eliminated from procreating population.

In each of the stories of the winners and runner-ups for the annual awards – from the beginning to the end – everyone hearing or reading about how the nominees meet their end will always exclaim “what was that guy thinking”?

While not involving life and death – there is one group of folks that are going down the darker path that most of us will eventually be exclaiming – what indeed were they thinking?

Ok, contrary to the cheerleaders from the West Wing and Wall Street doing their shticks that the economy and the markets are just ducky – they aren’t.

Last Friday we all saw the employment data. 539,000 jobs lost give or take under the Labor Department’s best guess survey. Yet, the deal is that the number of applications for new jobless benefits was down a smidge so that was enough to grab on to and say that the turn is coming.

8.9 percent unemployment. But instead, let’s look at 91.1 percent that do have jobs.

The turn is coming – right?

Well, let’s forget that a good chunk of the net job number came from Uncle Sam Incorporated. And in particular those jobs had no a shred to do with any stimulus spending project – but rather a perpetual budget item that comes around every 10 years.

Yep, the Census. And those jobs have little long-haul life to them.

But let’s leave that aside.

And then we had the whole Stress Test results published last week. I know that I discussed that the test wasn’t all that that stressful to begin with – but it was enough for some traders to step in and send stocks of several larger banks soaring.

But that’s before more and more folks began to learn that not only were the tests not exactly that strenuous – but even with the easy, breezy criteria – several of the 19 banks studied by the Federal Reserve Bank weren’t too pleased with the results. So, as I prognosticated days before – the bank CEOs went in and negotiated the results of the test including the capital deficiency amounts.

So, no wonder that the market has been dumping off some of the same stocks and others and those better perhaps better grounded in their appraisals weren’t willing to just go along with the pitches.

But whether we are turning around, parked, or still careening further down the path of economic recession and bear markets – what might be the worst possible idea to roll out – let alone actually put into motion?

Let’s look at really hammering those that actually employ folks – both current and prospective?

Yes, what a great idea.

We start with the movement to tax corporations on their worldwide income. Now, I know that its unfair to tax individuals and corporations on two different levels doesn’t meet the usual fairness tests.

And it does make for great political fodder to want to stick it to the corporations that are supposedly able to shield hundreds of billions of dollars worth of taxable income just by keeping the revenues earned outside the US – outside the US.

You and I can’t. For if we own stocks that pay us well that happen to be outside the US – we have to declare the income and pay out taxes on the income simple as that.

The deal then is to make the rules the same for corporations.

But the big difference is that you and I can’t just change our citizenship on a dime. And even if we did – we couldn’t still live in the US after doing so.

Corporations can shift legal incorporation in a New York Minute. And still continue to run their operations in the US – paying taxes on what is indeed earned within the US borders.

And countries around the globe are ever more eager to welcome more corporations – with lower or non-existent taxes or other schemes that make them more attractive legal venues.

Ok, that’s one. Now we the next new big idea coming out of the West Wing – reversing anti-trust enforcement on corporations.

Now, fairness comes back into the picture – just like with the on-shore/off-shore tax issue. But again – is this really the right time to want to make it that much less appealing to operate and more importantly expand business investment in the US?

It might play well now with the politicos. And the advisors and lobbyists might be doing their little jigs back in their offices on K Street. But really, it shouldn’t be that much longer if indeed these and some other prospective legislative and executive ideas out there become reality before too many of us will say – what were they thinking?

Lastly, a lady that had a big idea for something that was about as out there as possible died at 90 years.

Venetia Phair was a very well educated and precocious young lady that came down for breakfast with her grandfather back in March of 1930. At this one particular breakfast her grandfather an official at Oxford University was all about discussing the discovery of the then so-called Planet X at the outmost part of our solar system.

Venetia had the idea of proposing naming the new planet – Pluto. Now sure, you like me are immediately thinking of the beloved Disney character – Pluto – the dog and sidekick of Mickey Mouse. But for Venetia – she was thinking of the Roman god of the underworld.

Her grandfather took her naming idea and ran with it and after some serendipitous events – her idea came to be.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

I'M OK, YOU'RE OK - RIGHT?

2009-05-08T13:43:00.001-04:00

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I’M OK, YOU’RE OK – RIGHT?

Everybody seems to be pretty happy today – perhaps too happy?

By Neil George

What’s not to like about all of the good news in the markets today?

We started out with the first full trading day after the “official” stress test results and report by the Federal Reserve on the collection of 19 banks and financials. It seems that collectively these companies only need some 75 billion dollars give or take to make everything a-o-k – even if the economy gets worse and the credit markets slip even further.

And you know that it must have been grueling and legitimate – as even Ken Lewis of Bank of America (NYSE: BAC) fame called the test aptly named for how well it went. Heck – he’s still got his job complete with lots of perks and some 2.4 million shares in the bank.

But as I wrote earlier this week – do we really want to shift our market and stock analysis from the private to the government sector before we buy or sell a stock?

As for the bank company that I went through with my own stress test – Regions Financial (NYSE: RF) – it seems that the Fed’s stress test was a little more easygoing than mine. For according to the Fed’s – Regions only needs to raise some 400 million in core capital and some 2.5 billion to prepare for some addition potential or pending losses.

I put my own number around 6.2 billion – and I was being perhaps even a bit conservative. After all – that 6.2 billion is a multiple of the market capitalization of Regions. But perhaps that’s why the crack government stock analysts were also eyeballing when they came up with their own numbers. Too big and the market might be spooked?

And even by their own report – Regions should be ramping up losses to some 9 plus billion and even should be expected to see their core capital ration fall from the 10 percent towards the 6 percent range – which really isn’t enough, even using the too easy going Basel II international capital standards.

And if you read through more of the report – you’ll see that many of the assumptions just wouldn’t pass muster if Wall Street analysts and their salesmen were to publish and use them.

And example can be seen in taking uniform and non-geographic loss rates and non-performing loan rates for residential and commercial mortgages and property-linked and/or collateralized loans. Many of the banks – including several in the official stress test (not Regions overall) have loss rates for these classes of loans running already at over 50 percent greater than the assumed rates of the stress test modeling.

That means that while the stress test was supposed to see what if things got worse and then what would happen – instead – the test is looking at what would happen if things got much better.

Not such a great test – right?

But that’s not the point now of the test.

Instead, the 75 billion dollar number reads well in the papers – and sounds even better in the broadcast news bites. After all, most of the numbers coming out of Capitol Hill, the West Wing, the Treasury and the Fed have been in the trillions – so 75 billion is more like chump change.

But let’s then see how those trillions are adding up to some other troubling bits of news. The Treasury tried and did succeed in moving some 71 billion dollars worth of 30 year bonds this week. And this is on top of the billions the other week in the short-to intermediate maturities of US Treasury bonds.

The results of these big numbers has been that the market has been moving up crucial 10 and 30 year Treasury yields by 45 and 62 basis points (each basis point is 1/100th of 1 percent). This means that as the US government keeps trying to borrow more – we might continue to see base or benchmark interest rates in the US and US dollar denominated markets edge higher.

Not so good for mortgages, banks trying to raise new needed capital and other companies potentially in the market.

Or is it?

On the surface and in plenty of pandering newsletters – this news will be used to tell doom and gloom stories about the US. But at the same time – what they won’t be writing about is how the real core of the US dollar market – from many parts of the mortgage markets to the crucial corporate and international dollar-denominated bond markets are actually getting more bids.

This means that while Treasuries are slipping in price and rising in yield – the other parts of the bond market are getting better. This is why I continue to recommend my five core stocks that pay you in the form of the closed end bond investment companies with their stocks trading on the New York Stock Exchange that I reviewed again earlier this week.

One odd-ball bond issuer is coming to the market – and this is one that I wouldn’t recommend with a 10 or more foot pole.

PDVSA – otherwise known as the Venezuela’s government oil company is trying to get bond buyers to give it 2 billion. I can’t wait to see how this issue goes.

One fellow that I have been remiss at not noting his recent death was the head of the Bank of England (BOE) – at 70 years.

Eddie or “Steady Eddie” George was a long-serving member of Her Majesty’s government and for a decade – he was the leader of one of the leading central banks on the planet.

While many might question his judgment and knowledge of the “plumbing” or inner workings of Britain’s money markets as helping to lead to some of the current mess – to his heavy credit – Eddie worked tirelessly to move the Bank away from being a puppet of Parliament and Number 10 and more towards being an independent central bank.

Neil George is editor By George and Stocks That Pay You.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

SMOKE 'EM

2009-05-07T11:01:00.000-04:00

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SMOKE ‘EM

A little smoke never really harmed anyone – right?

By Neil George

Long time readers of mine know that I indeed love smoke. In fact one of my favorite financial-focused films was an HBO-made film released in 1993 adapted from the even better book of the same title – Barbarians At The Gate.

With a spattering of stars including Senator Fred Thompson and James Garner – the film is about the biggest leveraged buyouts (LBO) of that time – that of RJR Nabisco by the private equity guys over at KKR with a little help from their friends.

James Garner portrays F. Ross Johnson – then head of RJR Nabisco and in the scene where Henry Kravis (one of the K’s in KKR) is pitching the LBO idea – Garner is lighting up a good after dinner cigar and with a whiff and puff of smoke – he exclaims that he loves smoke.

As I write this – I’m enjoying a nice cigar supplied by my favorite importer and distributor – Jon’s Pipe Shop (www.jonspipeshop.com). The cigar is from the Philippines under one of his labels – Humberto Mendoza and is a delightful mild cigar for the morning – with just a bit of sweetness to go along with my bottomless cup of Joe.

Now I know that my days of enjoying cigars with my morning coffee are becoming just as numbered as being able to enjoy my collection of newspapers being delivered. So, if anything – I’m making sure that I can savor this moment as I type out my daily missive.

Smoke of course can have some positive benefits – and not just the creative process of reading, thinking and writing – but also to perhaps provide a nice filter on what we want to see.

Such of course is going to be the case as this afternoon’s Federal Reserve’s Stress Test results are released.

While the current head of the US Treasury assures us in his Op-Ed bit in this morning’s New York Times (www.nytimes.com/2009/05/07/opinion/07geithner.html?hp) that the Stress Test was and is credible – as I’ve noted before – it really doesn’t matter and shouldn’t matter what the Fed and/or the Treasury might say about the financials of the 19 banks surveyed.

Instead, it should be how each of us as part of the market views the banks. The other day – I went through how I look at banks – cutting through the smoke and mirrors of government pitchmen from the West Wing and next door at the US Treasury Building on Pennsylvania Avenue – to look at whether a bank is good enough to buy its stock – and even more so good enough to lend it money in the form of a mini-bond or preferred stock.

My example was Regions Financial (NYSE: RF) – which looks like from the bits of stuff leaked out ahead of the official test results won’t be asked to raise more capital.

I on the other hand am concerned about the debt rolloevers in the next 2 years – in which billions more of capital (either stock or bond) will have to be raised.

But instead, it seems that a little smoke out there in the market might allow traders and investors to perhaps see the banks in a little more beguiling light enough to want to buy – or at least not short them in the market.

Meanwhile – smoke can maybe do a bit more for your portfolio during the current mess of the economy and markets.

Periodically I look at tobacco companies. These have always been the stalwarts of the market – pitched as defensive stocks – kind of consumer staples with a bit of a kicker.

That kicker of course is the higher dividend yield that the makers of cancer sticks tend to pay out.

The downside to this market segment comes in two parts. The first of course is the never-ending series of lawsuits by over-eager consumers of their products that all of a sudden wake up to the idea that just maybe smoking is bad for them.

So, they want to blame somebody for their own back health decisions and there’s of course always a lawyer readily available to step in and provide them with a bit of help in getting what they see as rightful justice and perhaps a few billion dollars to make it all ok.

The second part of the downside to tobacco is that consumers of cancer sticks in primary markets are reducing their buying and smoking. Whether because they’re thinking more healthy – or whether the incessant taxes are getting to them – or whether they’re just getting tired of the ever more zealous nanny governments telling them that they can’t smoke in more and more spots – cancer stick consumers are slipping and sliding in number.

But this doesn’t mean that the market can’t still provide ample cashflows for businesses that understand that they aren’t in a growth market – but rather a cash-cow one.

So, if they can cut down on costs and keep delivering the products more efficiently – cash can and does keep coming. And unlike way too many companies supposedly making more socially-accepted products – tobacco companies tend to be some of the best stocks that pay you to own them.

And there are still plenty of markets around the world that are still heavy consumers of cigarettes. Russia of course has 70 percent of its male adult population that fires up each and every day. And in China with even greater numbers – the slightly smaller percentage of only 60 percent lighting up is still one hell of a cash pile in the making.

So, like I keep doing – I’ve made my notes in my Reports Notebook with a lot of the bits and pieces of market data on the right hand column of the Notebook and on the left side – I’ve begun to note some of the major usual suspects in this market to take a further look at and stress test them out.

But with some today – including British American Tobacco (London: BATS) reporting higher revenues for the last quarter gaining more than 7 percent – and the overall global industry group generating gains so far this year just shy of 17 percent – and an average dividend yield from these stocks that pay you running well over if not multiples of that of the S&P 500 – look for some new picks from me in the coming days.

And a guy that new how to operated in some of the highest powered smoke filled rooms of Hollywood – died at 79 years.

For decades – if you were looking to put together a project to make a picture in Los Angeles or become a producer along the great white way in Manhattan you needed some talent to make it happen.

And to get that talent – you needed to get to and through of the greats of agents – Sam Cohn.

Neil George is editor By George.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

NO MORE SONG & DANCE

2009-05-06T14:11:00.000-04:00

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NO MORE SONG AND DANCE

Just because the S&P 500 might be up a tick or two doesn’t mean that you need to pile back into the usual suspects on Wall Street.

By Neil George

By now you’ve heard and/or read the news. Yep, the market crash is all over. The S&P 500 index is up a whopping 0.06 percent so far for the year. Yes – that’s right, the stock market is now up for the year. And if you add in accrued implied dividend yield of the index – the return for the year soars even further to some 0.98 percent.

And you were getting so morose over how the market was treating you so badly.

The band is not just warming up – its already playing and the pitchmen from brokerages, banks and mutual funds are on stage doing their best full on performance – all in the hopes that you’ll buy back into the stock market like nothing really changed.

Forget of course that the same S&P 500 index of the stock market is down some 34 percent over the past 12 months – and the Dow and Nasdaq Composite are down just as much if not more for the same 12 months – it’s all about what bits of information can be touted to get you to buy stocks again.

Yet, don’t think that the all clear signal has been blown. And even if it has – do you really want to just wade right back into the same usual stocks that got too many folks into too much trouble in too short a period of time?

How about looking not just what’s recovered – but what has been working well not just so far this year – but for the past several years.

It’s a nice little collection of five investments. Five core investments that I’ve been writing about for more than the past decade and five core investments that I continue to tell folks that want to list that they need to own before any other investment is bought.

They are five stocks that pay you. And these five stocks that pay you to own them – don’t just pay a trifle 2, 3, or 4 percent as are usually touted by market song and dance men when they’re doing their dividend dances – but instead how about getting paid month after month after month dividends paying you around 9 percent.

So, if you were to take 100,000 bucks from your portfolio and buy into my five stocks that pay you to own them – you’d be getting checks coming in month after month of 750 dollars or 9 grand a year. And after the next decade – just like the past one – those checks would add up to nearly doubling your investment in these five stocks.

Now, you would think that there would be countless pitchmen out there telling you to buy these stocks. But really, other than me – I don’t know a soul that writes or talks about them – and if they do – they’ll tell you that they just can’t be that good for you and your portfolio.

Meanwhile – they’ll roll out the usual suspects of the S&P 500 which over the past 10 years are down over 40 percent in price while the average total return for my five stocks is up over 140 percent. And so far this year – my five stocks that pay you aren’t just up like the anemic S&P 500 – but soaring by an average return of over 14.5 percent.

What are my five stocks?

Are they on some funky foreign market? And what can the catch be?

Well, how about the New York Stock Exchange (NYSE) and there isn’t a catch – well, except one.

They look and trade like stocks – but they are actually closed end bond investment funds.

You know them as the Pimco Strategic Global Income (NYSE: RCS), the Templeton Emerging Markets Income (NYSE: TEI), the AllianceBernstein Global High Income (NYSE: AWF), the Blackrock Income Opportunity (NYSE: BNA) and the Western Assets Emerging Markets (NYSE: EFL).

These trade just like a stock – because they are stocks. And their assets generating the income to pay for those dividends are primarily government bonds from around the world.

And get this – they trade at a big discount of 9 or more percent below the book value of the assets of these investment companies.

No song and dance here – all you need to do is look at them for the long haul like I do. Stress-test them like I do – meaning – look at how they pay and perform year after year during all economic and market times. Sure, they bounce around the stock market – yet all along the way for the years and years that they keep operating – they keep paying you to own them.

And that’s exactly what you need right now.

One fellow that did do one heck of song and dance routine died at a mere 52 years. For some 46 weeks a year – five nights a week – Danny Gans did his shtick on some of the best stages in Las Vegas.

And if you’re heading out to join me this coming week in Las Vegas for the Moneyshow – perhaps when you see the ubiquitous billboards for Danny you’ll perhaps give a little nod of appreciation for one effective entertainer.

Neil George is editor By George.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

OLD SCHOOL

2009-05-05T13:14:00.000-04:00

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OLD SCHOOL

When it comes to running a bank or an economy – it really doesn’t take much more that genuine common sense.

By Neil George

We’re all waiting with bated breath over the so-called government’s stress test results that were supposed to be out and public by now – but instead are being held up. Supposedly, the guys over at the Federal Reserve Bank are having their sit-downs with banking leaders from the selected 19 banks that are part of this review.

Then, on Thursday the 7th – we’re supposed to get the results of the tests and what steps that the banks involved are going to do to fix their status.

This of course is kind of like watching students at the end of a term filing into their professor’s office and after getting a heads up on their poor grade doing their song and dance as well as pleading for a better mark.

Now, the media loves this. It gets us gullible investors and even innocent bystanders all hyped up over the concept that the banks are either all fixed – or if not – then the fix to make them all okay-dokey.

The trouble with this process is that none of us should care. And instead we should be focused on the banks that are in good shape as well as avoiding those that are in dire shape – with or without the Fed’s grade book release.

And none of this should be a new course of action – but how all of us should continue to operate.

The key thing to ask yourself is whether you want the US government to be your analyst of the markets and of stocks – or if you’d rather instead rely on the private sector.

You might say that it’s been the private sector analysts that got us into the mess that we’re in – and perhaps it might be a good idea to nationalize stock and market analysis as the government is a better judge of whether a bank or any other company is in good or sad shape.

That’s the new school of thought that continues to quietly insinuate itself into the thought process of the markets.

But here’s an alternative. Rather than just going blindly along with the usual Wall Street analysts that rarely blow the whistle on any bad bank – let alone any bad company’s stock – and rather than going with Washington’s government employees’ market calls – how about just doing your own stress test of bank.

Yes, the old school way of investing – by doing your own homework and looking at stocks as companies that you’d actually be buying and investing in.

Let’s look at a few straight-forward measures of how to look at a bank.

First, let’s look at the operations. Banks really come down to a pretty simple business model. They pull in deposits to which then are liabilities to fund loans that they invest in as the assets. Then they have to simply manage how they service the liabilities of paying their deposits against how their loans pay them.

So, first up – when looking at a bank – look to the deposit and loan growth rates. Rake for example Regions Financial (NYSE: RF). Currently trailing deposit growth is actually falling by over 4 percent. This means that unless the bank can reverse this – that it will have to scale back lending and shrink the size of its assets.

Meanwhile, loan growth is running at over 2.5 percent. This is good – as it shows that the bank is continuing to run its core business rather than just pulling in its horns.

Next we need to see how the margins from its operations are running. We can do this by looking at net interest margin – which boils down to the difference between how much that the bank is paying for deposits against what its receiving from its assets. For Regions – that number is running at over 3 percent. Good – but it could be better.

To see the relative performance of the bank – we can look at the efficiency rate. This is the measure of how much it costs to generate profits from normal operations. The lower the number the less it costs the bank to generate a dollar of revenue. A good number is around .40 with some questionable ones hitting the .60 to .70 levels.

Regions right now is running at .66 – which is understandable given many of the massive market changes underway.

Then we hone in on the profits – by looking at a return on assets and return on equity. Looking at the ROA – banks should be above 1.0 percent as normal – with 1.25 being pretty good. Right now with charge-offs – Regions is running at an ROA of -3.90 percent.

And on shareholder’s equity – the ROE on good banks should be in the teen’s – but again with charge-offs – Regions is running at a current reported loss of 33 percent ROE.

Ok – so we’ve looked at the operations and profits from operations – but to really look at the bank as to whether it can survive – we need to hone in on the balance sheet.

First – we need to look at non-performing loans as a percent of all loans and all assets. Again – in better times – the NPLs should work out to less than .40 with a number of .25 being good. Regions is now running at 1.3 percent to loans – not great – but a whole lot better than many in its peer group. And in terms of total assets the number drops back to .89 percent – not great – but better than many.

But what we need to look at are the reserves and provisions taken against the potential further write-offs of NPLs to become bad loans. Regions has reserves to loans running at 1.8 percent and to total assets running at 1.4 times current non-performing loans – a good cushion and higher than others – but it could be bigger.

Yet, when it comes down to the capital of a bank and the ability to absorb losses – we need to look at the core capital and the effective leverage of that capital in funding its loans and other assets.

A core capital rate in the lower double-digits is good – the higher the better for safety – the lower the better for current financial performance. Regions is running at over 10 percent. And for leverage its running at around 8.5 percent – which could be higher in better times – but is pretty much inline with a bank looking to scale back during tougher times.

And the final rundown on any bank should be just like for any company – by looking at the debt and risk that the debt will break the company.

Regions – like many to most financials has debt – both credit lines and bonds spread out over the next many years. Yet more is front-loaded in the next 2 to 3 years. This is where the real rub comes in. If indeed the bank continues to slow down deposit growth – and in turn has to scale back loan growth. And if in turn it has to ramp up its reserves against its current loan assets – revenue will suffer – reducing the attractiveness of lending to the bank via the bond market or other parts of the credit market.

And given the debt roll-overs in 2010 through 2012 – Regions has to come up with a game plan to issue new debt or new stock to roll or retire its debts. This amounts to some 6.2 billion – which is not too far shy of nearly twice its market cap – but is less than half of its total assets – meaning that it should be able to meet newer creditor/bond buyer needs even if it means shrinking the bank a bit more over the coming quarters.

Now that you’ve read some of my bits on Regions – it will be interesting to see how the government’s verdict comes out – I’ll let you know.

And one fellow that was one of Wall Street’s truly old-school guys – died at a whopping 107 years. Al Gordon was the guy that led one of Wall Street’s stalwarts – Kidder Peabody – as its chairman. And while it’s now part of UBS – the flag still flies at least on some bits of underwriting now and again – perhaps even for some of the new bank stock and bond offerings that we should expect coming our way in the coming months?

Neil George is editor By George.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

LET THEM EAT CAKE

2009-05-04T16:02:00.001-04:00

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LET THEM EAT CAKE

Ever fight over that last piece of cake with a sibling at the dinner table? Well now we’re all fighting – not just for a piece – but the whole cake and it doesn’t look like we’ll get a bite.

By Neil George

Many around the nation might enjoy re-reading an old classic from Tom Wolfe – The Bonfire of the Vanities. It told the story of the last major US debt meltdown and the resulting fallout in the bond and credit markets.

Included in the plot line was the tale of one of the masters of the universe – a bond trader that ran into a few sags to say the least.

One of my favorite passages that I’ll paraphrase is when the master of the universe’s job is being described to one of his progeny. And it goes kind of like this.

Daddy gets a big cake and cuts it into pieces and passes them around for others to share. And along the way – he collects the crumbs that fall by the wayside.

None too pleased with the trivialized description – the master of the universe’s retort is that some of those crumbs are pretty darn big.

Right now – the cake is much greater than just a single bond issue. In fact, the cake can be thought of as the entire economy of the US and even well beyond.

And we’re all working on the cake. Some are baking it as well as coming up with the design and all of the trimmings as investors and business leaders. And others are eagerly awaiting their slice – even if they had little to do with any of the baking – much like so many of the entitled classes of voters.

And over the past several days – it’s those that have been doing the baking that are being left with not just their slices – but crumbs – if anything at all. And it’s the entitled – that are being served up ever larger slices.

The folks over inside the West Wing of the White House led by the current president have been quite busy recently. Take for example how much time and attention that they’ve been devoting to the Chrysler Corporation.

We all know that there has to be a reckoning of this failed company. The debts are way too large to be serviced by revenues and can’t be justified against assets. And embedded costs of operation – including plenty of entitlements for those both on and off the assembly line just make it near impossible to run it as a profitable operating company.

Most in this situation would simply liquidate the whole thing, selling off production and other assets and start afresh with more competitive costs of production.

We know that the US continues to be a viable – if not still successful place for domestic automakers as companies such as Honda continue to assemble vehicles by the thousands in Ohio, while Toyota pops their out of their factories in Tennessee and everyone from Porsche to Mercedes-Benz, BMW and even Hyundai are still expanding their facilities while Volkswagen is preparing to re-enter US production again.

And Chrysler has a bidder for some of its facilities – in Fiat of all companies.

So, it should’ve been a done deal.

But the West Wing guys didn’t like how Chrysler was being sliced up. Bond holders getting their due while those of the entitled class got little to none.

That’s the way of course that it’s supposed to work. Bond holders and senior creditors are first on the list to be paid back their capital. They control the process. While stockholders and workers get whatever might be left over.

But that wouldn’t be fair now – would it?

So, the West Wing rolled out their criticism of bond holders – trying to vilify them as the bad guys holding up the whole deal.

Using charged labels – such as Hedge Funds and the like – the West Wing guys thought that they could shame investors into surrendering their due from what’s left of the Chrysler cake.

Now, let’s forget that many of the investors in Chrysler bonds are actually everyday folks. Owning the bonds inside countless mutual funds and pension accounts – they’re not the fat cats as being portrayed by the West Wing.

And now, even as the creditors and investors of Chrysler are trying to hold on to what’s legally should be theirs – General Motors is now in the sights of the West Wing.

Like Chrysler – GM needs to be liquidated and the assets liberated for more successful management less encumbered by past concessions to the entitled class.

But the rather than letting creditor laws work their course in favor of bond holders and bank lenders – the West Wing is trying to again steal the cake.

What they’re pushing is that unions with subordinated claims against GM should be bumped up to the top with not just a slice of what might be left of GM – but the lions share – dwarfing by multiple fold what senior creditors and bondholders would get.

This might play well with the entitled class – but it won’t play well with the bond and credit markets.

Right now – it’s not about jobs or handouts – but rather fixing the banks and the rest of the credit markets – including the bond market. We need credit to flow – and not just by and or through Uncle Sam – but by those in the real world credit market.

If creditors – ranging from banks to bond market masters of the universe – to just everyday individual investors like you and me begin to recognize that Uncle Sam can just on a whim – take away their rights without due process and without compensation – then what’s the incentive to lend and invest?

The credit market cake then would begin to shrink and no amount of stimulus cash would be enough to bake it back up.

The same can be said of the rest of the economy – beyond just the credit markets.

Right now, the West Wing is getting ready to rollout one of the most massive of tax increases ever experienced in the US. How about some 700 billion dollars in just corporate tax hikes alone – even before we begin to see individual tax rates and brackets hiked.

He deal being proposed by the West Wing would be to tax US corporations just like individual taxpayers. Meaning that corporations – like individuals would be taxed on worldwide income – and not just income repatriated back to the US.

The results this year alone could amount to an additional tax bill for companies like General Electric in the amount of 27 billion. And that’s just one of several companies adding up to that 700 billion dollar tax hike.

Now, I’m all in favor of tax equality – but really, during one of the worst downturns – should Uncle Sam be looking for a bigger slice of an ever smaller cake right about now?

Meanwhile, while Uncle Sam is trying to rob bondholders while sticking others with bigger tax bills – the spending plans of Capitol Hill are now set to blow up the deficit to just a few billion or so of a trillion dollars – the highest ever for the Federal budget deficit in a post World War II world. And that’s set to expand the debt of Uncle same to more than 54 percent of what’s left of the US GDP.

So, no wonder that the West Wing is looking for all the cash that it can dig up.

But this brings up another story involving cake – this time with an anecdotal recount that I read with great interest in the Financial Times this morning of a a discussion of former UK Prime Minister – Margaret Thatcher.

Thatcher noted that a bigger cake means bigger slices for everybody. But what government needs to understand is that you have to allow and encourage the creation of wealth to make for that bigger cake.

Perhaps somebody ought to send over some of Margaret’s papers and her memoir up to Capitol Hill and down to 1600 Pennsylvania Avenue?

One man that didn’t need any tutoring on Thatcher – or the benefits of lower tax rates for improving tax revenues died at a mere 73 years.

Sure, you might laud Jack Kemp for his AFL Championship victories with the Bills – but for me – it was his working with and for the Gipper back when the West Wing was run a little differently.

Neil George is editor By George.

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

PAY ME

2009-02-23T00:52:00.000-05:00

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PAY ME.

There’s one thing that still works in these markets. It’s not about guessing about turnarounds. But rather making sure that what you own is going to pay you and keep paying you.

By Neil George

I’ve never met a man gone broke with regular checks coming in.

And sure, just like in this market you can still lose a lot in sinking stock prices. But if you can continue to buy and own a collection of stocks and bonds that have the ability to keep the checks coming for the years to come you’ll make it through pretty much whatever Wall Street might stick you with along the way.

For years I’ve been focusing on my mantra of getting paid. In a market that’s overflowing with Wall Street pitchmen and CEOs interested in feathering their nests while stripping away yours – investing in dividend paying stocks and bonds has always been the solution.

This isn’t the way of Wall Street. As instead - it has been built by pushing IOUs that promise growth rather than paying you a cut of profits if you would only just trust them.

But as the rest of the world is learning – even they don’t trust themselves anymore – so why should we?

Now, we know first hand that Wall Street has dumped on just about everything. As recently it hasn’t mattered whether a stock was a cash generating machine or a scam – it’s gotten battered.

But this doesn’t mean that you need to flee – only to understand the power of cash coming in.

Dividends build up your portfolio’s value. Wall Street might take swipes at it – and it can knock it down – but it can’t stop the growing pile of cash from the right collection of stocks and bonds.

And that power of dividends only gets stronger over the years. For as the year’s progress – the compounding of those dividends starts to add up. And two things matter with dividends – the longer your get them and how much you’re getting along the way.

It’s compelling to try to grab the highest dividends – but as I’ve written over the past year – often it’s not the highest yielders that generate the best longer-term returns – but the more reliable if not more modest payers.

This is why over the past year I’ve recommended selling several higher dividend paying stocks and bonds – favoring those that pay a bit less now – but continue to be more likely to continue to keep paying.

So my bottom line continues to be that getting paid consistently adds up to covering a lot of near term market losses. And over the years – it makes it more likely that you’ll be worth more than if you just bet on Wall Street’s pitch to bet on growth.

Checks Aren’t For Free

Dividends work – but only if the stocks paying them keep paying. Nothing in this market or any market should be taken at face value. This is why I have four rules of vetting my recommendations.

First of course is that the stock has to pay us. It doesn’t have to be the highest dividend – but getting your cut of the profits throughout the year makes it not only more likely that you’ll profit over the years – but it also helps to prove the validity of the company that has to cut the checks.

Sure, there are some exceptions to the dividend rule. But in these rare cases – the companies have to sorely justify the reinvestment of profits with compelling regular performance and not just a promise of someday all will be profitable.

Second, the business behind the stock has to be sustainable. Cash can’t come from a company that’s bleeding capital. So, I’ve always looked not at the best business environment – but the worst when looking at survivability.

A case in point can be seen with one of my recommendations - WD-40 (NSDQ: WDFC). While history doesn’t prove future prospects – it can demonstrate how companies deal with adversity.

In the last recession – the company continued to bolster revenues and both gross profit and operating income continued to be hefty with margins during the depths of the last recession still in the upper double-digit percentages.

Third, the company behind the stock has to be financially sustainable. As we’ve seen before – a good business can be run into the ground if it can’t keep funding its current operations as well as funding expansion.

This is where I look at the balance sheet and the income statements and run my what ifs. Part one is to look at the current debt and the maturities and rollovers of that debt. This means that I can see when the company has to deal with creditors to keep funding going.

Part two, I need to see that the assets of the company provide enough backing for lender’s comfort and that cash on hand as well as cash coming in can sustain debt coverage.

A case in point is another recommendation - Linn Energy (NSDQ: LINE). The petrol producer has a loan maturing in 2010 and a smaller bond in 2018. In addition it has a revolving credit line. From a balance sheet basis – its debt is only 48 percent of asset – making it under leveraged and more creditworthy.

And from a cash standpoint – its revenues – even at lower petrol prices like its peers in the portfolio can still continue to remain steady to rising at expansion rates in the double-digits currently running at an annual rate of 20 percent.

Fourth – I need to assess market risk for the stock. As the adage goes – the market can be wrong about a stock a lot longer than we can be solvent is ever more important now.

You might ask – if the company is business and financially sustainable should we be as concerned over the market’s price of the stock if we are prepared to ride out the market’s woes?

The challenge here is that if the market does send the price low enough – the company’s market capital can be reduced to make it harder to keep up its financial stability.

My response continues as it always has to be to watch the market’s pricing ever carefully and monitoring the equity capital. If it continues to fall to levels that begin to threaten the financial stability – then I have to sell.

Quality Quartet

We continue to have four primary groups of heavy cashflow paying investments in the By George portfolio that continue to prove out through our four-point vetting process. They include my favorite minibonds, bond funds, utilities and steady operating companies.

Each group isn’t impervious to market selling over the past several months. But for me – it’s the underlying sustainability of the companies and the strong dividend flows that justify my call to you to keep buying and owning them.

I start with bonds. Bonds aren’t about what happens in a month or a quarter – but over several quarters and years. And over the past five years the core benchmark US bond market continues to prove out in generating positive returns with the average annual rate earning you over 5 percent.

We continue to better them with my specific collection of government and prime corporate bond funds including the AllianceBernstein (NYSE: AWF), Blackrock (NYSE: BNA), Pimco (NYSE: RCS), Templeton (NYSE: TEI) and Western Asset (NYSE: EFL).

Yes, over the past several weeks we’ve seen horrific volatility – but through it all the underlying bonds continue to generate dividends in the high single to low double-digit plus range - while also performing so that the funds are worth more on average to the market’s current pricing.

Second includes several of my favorite corporate individual minibonds. I call them mini’s for short – but what they really boil down to being are simply regular bonds that have been cut into pieces that trade right on stock exchanges.

That means easy access for individual investors – and even better – as they trade on exchanges appearing to many as just odd-looking preferred shares – they often provide additional yield over the regular full-sized bonds traded in the OTC bond market.

A few to note that I have inside my portfolio of By George include: the AT&T 7.12% Mini (OTC: KTBB) yielding around 7.6 percent and is a great buy under 25. Next is the DPL Inc. otherwise known as Dayton Power and Light 7.875% Mini (NYSE: MJT) yielding around 8.7 percent and is a buy under 25.

Another utility - Qwest Communications has a 7.75% Mini (NYSE: PKH) yielding around 15.3 percent which is a buy under 25. Health insurer - Unum Group has a 7.4% Mini (NYSE: PJR) yielding 12.3 percent and should be a buy under 25.

And two more phone companies - US Cellular 7.5% Mini (NYSE: UZV) yielding 10.6 percent is a buy under 25 while the Verizon 7.625% Mini (NYSE: PJL) yielding 7.7 percent is another buy under 25.

Third includes my collection of essential utilities. While up and down in price – over the years they keep paying us and performing with average annual returns for this group including Southern (NYSE: SO) running at over 13 percent.

Fourth includes some my favorite operating companies including partnerships that span various industries – principally in steady cashflow industries. The returns keep coming with high cash payments despite market and economic woes. A couple prime examples to look at would include Enterprise Products Partners (NYSE: EPD) yielding around 9.3 percent and is a buy under 25 - while Linn Energy (NSDQ: LINE) yielding around 15.3 would be another buy under 18.

Neil George is editor By George.

A BIGGER TARP

2009-02-23T00:13:00.000-05:00

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A BIGGER TARP

Just like at a picnic when the skies open up and folks scramble for cover – so too is the move by more and more to get themselves under the protective cover of Uncle Sam’s TARP.

By Neil George

The Troubled Asset Relief Program so far has been one of the greatest giveaways in the history of government – and it’s far from running out of fabric.

Sure, you might say that the 700 billion bucks is the limit and that the initial payout of hundreds of billions has pretty much already been spent – but there’s a lot more still coming.

And no – I’m not talking about throwing cash away on a couple of car companies in Detroit – but rather a whole new batch of banks.

So far – under the TARP deals – the US Treasury has placed some 155 billion bucks with some 77 banks around the US – and some fringes beyond. Out of that 155 billion – 115 of that cash was placed with the top 8 largest banks in the US market. That’s right – out of some 8500 banks around the US that are part and parcel of the Federal Deposit Insurance Corporation (FDIC) membership – 8 of these banks have gotten the lion’s share.

That means that for thousands of public and thousands more of privately held banks – the TARP has yet to cover even a smidge of them during the current financial storm.

And guess what? These smaller banks have lobbyists. Go figure.

One of the groups that’s working deals now for TARP cash is the Independent Community Banks Association (ICBA). It’s rightfully arguing that with all of the heavy money going to the biggies of banks – that smaller banks are being put at an increasingly less competitive position.

And they’re also arguing that its been the smaller banks that have been left for dead not just by Treasury – but also by the FDIC that’s pretty much moved to seize and liquidate smaller banks as opposed to supporting deals for the failing bigger banks so far this year.

From an investor’s position – what I see continuing is that the TARP will continue to get bigger. With more cash continuing to flow to banks – not just at the top of the heap – but further down a few rungs of the ladder.

The cash of course isn’t going to be come from buying bad loans or poorly pooled bundles of loans – but rather in more and more preferred shares of stock in banks – from the large to the small.

This is of course thanks to a bit of editing in the TARP legislation. It seems that as many on Capitol Hill and at the White House were all about trying to keep bank executive compensation better under control for political points with voters – they also had to listen to lobby groups – including the much bigger banking group – the ABA or American Banker’s Association.

While many assumed that when banks took TARP cash – that they would be limited as to what and how much that they pay senior executives. But the reality in just a couple of sentences put into the TARP is that if banks sell bad assets to the Treasury – then they come under rules of compensation. If they only sell preferred shares or other capital – then nothing is changed.

This is why all of the biggie and not so biggie banks were willing to accept TARP cash.

And why now – the smaller fry are also working to get theirs’.

This means if you want to continue to follow my direction to invest right along with Uncle Sam Inc – look at the preferred share market for banks.

There are plenty out there that pay in the upper single to low double digits – and they’re the same banks getting more Uncle Sam cash.

One in particular that’s a real deal is an old local Saint Louis favorite of mine – First Banks owned and run by the Dierberg family.

No common stock – all was bought back – only a few preferred shares – including the 8.15 percent trading on the NYSE (New York Stock Exchange) under the symbol FBS A.

Trading at a big discount to its call – it should be grabbed when you can.

Neil George is editor of By George.

THE NEXT BUBBLE

2009-02-23T00:04:00.001-05:00

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THE NEXT BUBBLE

The way out of the collapse of the burst market bubble is finding the next bubble in the making. And the next one is going to be big – really big.

By Neil George

Now, the credit bubble has burst. And the results are known to everybody. Stocks are down in the US alone by more than 35 percent or more so far this year.

Meanwhile, the talking heads on financial television are as hyped up as ever either telling you what went wrong – or how bad it’s going to get. And sure, there are some that are telling you that now is the time to buy. But just because many stocks might well be cheap right now doesn’t mean that they’re great buys – but why they will perform.

The key thing is to understand in this process is that for every modern market collapse that there’s been a new market bubble to take its place. And while it might not make for great long-term policy – knowing this gives you real reason to buy into what’s coming up next.

If we look at some of the history of the US markets – we can see this bubble and trouble process. Take for example the last major credit market collapse of 1989.

Back in the ’80s – federal regulators of savings and loans and thrifts moved to prop up the housing market. S&Ls were allowed to be more flexible with reserves and investments beyond the core mission of taking in deposits and making and holding home mortgages.

The result was a reckoning not too dissimilar to the current banking mess. The workout resulted in the formation of the Resolution Trust Corporation (RTC) which would eventually seize more than 700 thrifts and selling off their loan and other assets.

The collapse of the housing and credit bubble in ’89 brought with it a resulting recession. And while the market losses of 10 plus percent wasn’t as dire – it wouldn’t be that long before the next bubble would begin to make its way into the market.

The Federal Reserve Bank (Fed) not only flooded the economy with cash – but it also worked to ease reserve and margin restrictions in markets for stocks and bonds. This heavy lifting by the US government set the state for the next bubble in equity markets from ’95 through ’99. The gains that would come more than dwarfed the market losses from the credit bubble collapse.

The Dot-Com bubble burst as investors not only began to seriously question company valuations and revenues – but also – money conditions and higher interest rates began to kill off even viable start-up companies.

The burst bubble in stocks resulting in the broader loss of a third of the value of the S&P also sent the US again into a recession – but Uncle Sam was at the ready to start pumping up the next bubble. And this time – it was almost a rinse and repeat of ‘80s real estate bubble. Not only was money eased by the Fed – but capital requirements on banks and brokerages were significantly eased.

This next bubble sent wealth flying out of the collapsed stock market and into housing even more so than in the ‘80s. The resulting burst of the credit bubble started as slower leaks in various local markets in ’05 with housing falling broadly by more than 20 percent as tracked by Case-Shiller.

And in the process – the Fed along with regulators in the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) was already aiding the next bubble in commodities.

Again – the game plan was to ease up on rules concerning non-exchange trades in commodities – helping to move more cash to commodities or at tracking indexes creating a huge build up in the markets for real goods in ’06 to the peak of the summer of ’07 by more than 49 percent. Then the bubble collapsed since falling more than 42 percent till now.

Now as the credit market is mauled, stocks have been slaughtered, commodities cooked – what’s already well underway to get things going again is Uncle Sam’s plan for the mother of bubbles.

Uncle Sam Inc.

In each of the bubbles burst during the past three decades – as well as plenty before them – politicos, either fearing retribution by voters or being lured by lobbyists, regularly respond not just to level market obstacles – but rather set up the next bubble for the markets.

And in hindsight – over the past decades – you might have or should have cashed in on many of the past bubbles. And right now you need to be getting into the next one.

Uncle Sam is the next bubble.

Government has continued to be a bigger chunk of the economy over the past thirty years. For in just the Federal spending alone has soared by some 550 percent – well more than double the core rate of inflation.

And 2009-on it’s going to get even bigger as the budget right now is estimated to be at over 3.1 trillion dollars.

If I were to tell you about a company that has been growing through recessions and bubbles by that amount and forecast to rise even greater in the coming years – you’d be interested in buying in. And that’s exactly what you need to be doing right now.

Now Uncle Sam might not be publicly listed – but it’s subsidiaries are.

Uncle Sam Inc has 5 core divisions: Banking, Defense, Healthcare, Energy and Infrastructure. And in the current budget - each of these divisions will be seeing massive spending in just the official 2009 numbers.

Each of these divisions is about as close as sure things in terms of cashflows as you can get in the market. But the work comes in figuring out which companies will get the full gains from the capitol.

Bank On It

I’ll start with the most visible bubble in the making – banks.

The major response to the credit and market bubble’s popping is of course the Troubled Asset Relief Program or TARP. The legislation authorizes the US Treasury to be able to spend taxpayer funds on pretty much anything deemed to be helpful at getting the economy and markets working again.

Over the coming years – hundreds of billions of dollars have been allocated with more available initially and ostensibly to buy up troubled loans and other credit assets of banks. That was the plan – but as it’s been put to work after Congress authorized it – the Treasury has begun to buy not troubled loans – but ownership interests in banks as well as now insurance companies and other financials.

In just the past few weeks – 25 banks around the nation have become partially owned by Uncle Sam Inc through direct investment in preferred shares. And that’s before two of the nation’s biggest mortgage lenders – Freddie Mac and Fannie Mae were previously brought into Uncle Sam’s portfolio.

And there’s more to follow – as not only is the Treasury investing directly – but over at the Fed – Uncle Sam is fully into the lending business. And not just to member commercial banks – but now directly to corporations inside and beyond the US via the Fed’s buying of commercial paper and other shorter-term loans.

The impact of this will be huge. There will be a stream of further consolidation – directed by Uncle Sam resulting in big gains in banks. Right now we need to start doing what Uncle Sam is doing – buying preferred shares of solid banks. One of my favorites over the years is First Banks based in Saint Louis.

A solid family-owned bank that’s always shunned risk bought out all of its common stock. Now only issuing preferred. And that’s fine with me as its 8.15 percent preferred (NYSE: FBS A) offers a yield of over 12 percent.

Best Offense Is Defense

One of the steadiest of businesses is supplying Uncle Sam’s military. Spending never goes down. And being one of the biggest divisions in spending – it’s only going to get more profitable.

I’ve been handicapping the best prospects over the past few months and by doing that I’ve come to see one of the most locked in for Federal Cashflows is – General Dynamics (NYSE: GD) with its contracts across nearly all business lines of defense.

Health & Wealth

The transformation of the healthcare industry is still just getting underway. Uncle Sam already spends as much and will spend more on this than Defense.

I’ve written plenty on this over the years concerning the public-private mergers of healthcare over the past few years and see that the model of the Federal Health Benefits Plan (FEHBP) is one of the key models for healthcare benefit managers to cash in on providing broader healthcare coverage for more Americans beyond Uncle Sam’s employees.

One of the leaders in the market for providing healthcare coverage for the FEHBP is UnitedHealth (NYSE: UNH) which should be inline to get a bigger chunk of public and private cashflows.

Energy & Infrastructure

The last two divisions of Uncle Sam Inc focuses on increasing alternative energy and fixing and expanding key bits of our transportation and essential services infrastructure. Again – this has been a big area of focus for years and now I see that the cash is coming – less so from the private sector and now more so from the government.

On energy – there’s a host of projects – but right now nuclear is getting ramped up with deals cut already with one of the leaders in power plant equipment and construction. Areva (OTC: ARVCF) is a partner with an old favorite - Siemens - and has current and pending contracts right now from Uncle Sam.

Then think about what everybody knows that we need – better roads, improved public transport, better air and shipping ports as well as water and other essential services systems. There are plenty of key companies that get the call from Uncle Sam – but one keeps standing out for me – is Shaw Group (NYSE: SGR). With divisions spanning most of our key national needs – its set for Uncle Sam’s cash to flow.

Neil George is editor of By George.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

TOKYO TUTORIAL

2009-02-23T00:03:00.000-05:00

BG11022009

TOKYO TUTORIAL

Does anybody actually have any sense of history when it comes to crises?

By Neil George

How many times a day are we either hearing or heaven forbid actually reading about how if left unchecked the current economic recession could end up being the end of days?

Politicos love hyperbole. For them, if they can get enough hoopla to make the media stand up and quote them – then it makes it that much easier for their next campaign.

And while the stimulus legislation is now in committee – we’re now getting bombarded by pitchmen telling us that if we don’t spend 800 or so billion bucks that we might just see the recession now just two-quarters underway last for years if not decades to come – with even more fallout throughout businesses and households throughout the US.

And to make the point – we’re getting some history lessons including from the current president that we’ve seen this before.

Japan is now being used as the poster child for what not to do when the banking system goes bust.

And rightfully so. For if you’ve been around for as long as I have – you’ll recall that Japan had a bit of a bank breakdown due to over-leverage tied to real estate as well as a variety of ill-managed investments around the world.

The result was that Japan had a massive reckoning in the late ‘80s that resulted in banks pretty much shutting down. The fallout came as those same banks stopped lending and everybody from consumers to businesses were severely curtailed in spending, investment which sent the economy into a recession that lasted arguably all the way through to, well, now.

Sure, there have been some blips of growth – but really they’ve bit fits and starts – not sustained solid expansion.

So, when politicos including the current president want and need to make a quick case for spending massive amounts of our money on a so-called stimulus plan – Japan makes for a great case study.

Except that when the story is told about Tokyo’s troubles – from the current president down to those folks rambling around on Capitol Hill – the facts tend to be turned upside down.

The Japan issue came down to banks that couldn’t write down assets to market values because if they did – they’d be broke. So, from real estate to corporate loans – banks were locked up and nobody was willing or able to lend.

And like the current mess in the US – the government knew that it needed to do something to get the economy humming again. So, what was the plan? Massive stimulus spending. Trillions upon trillions of yen was spent on pouring concrete to added unemployment benefits and the list of pet projects went on and on and on.

And guess what? It didn’t work. Sure we saw some blips of expansion in some areas. Construction jobs and some of the ancillary businesses got some cash coming in the door. But it didn’t last.

And it didn’t last or take hold – because the plans did little to force the banks to come clean with their balance sheet woes and did little to nothing to unload or even buyout the bad assets.

So, now we have the current president telling us in prime time that we need to heed the lesson of Japan. We need to do something. But what he doesn’t want to tell us is that Japan did fail in doing nothing – nothing about its strapped banks. And what it did do – did squat for the credit and economic woes.

Not that many Americans have a sense of history – so they’re willing to have hope that our leaders know what they’re doing.

Or do they?

It seems that just maybe that the average American is now catching on to the fact that the folks in the West Wing as well as on Capitol Hill don’t know what they’re doing. The polls this week show a dramatic drop in the approval for the stimulus spending plan – going from 57 percent in favor to just a tick about half.

And as we’re getting more bits and pieces about the breakdown of the near trillion dollar spending plan – it becomes ever more clear – that the plan looks a whole lot more like it was taken right out of the playbook from Tokyo.

How about some highlights?

50-60 billion for food stamps.

4-17 billion in one time checks for Social Security recipients

46 billion in roads and related bits.

139 billion for Medicaid, Medicare and other bits of healthcare spending

82 billion for local elementary and secondary education grants

40 billion in spending for energy development

How much of this has anything to do with cleaning up the balance sheets of the banks around the US and around the world?

Yep – squat.

No wonder the markets are in sell mode again.

Neil George is editor of By George

My New Blog

2009-02-06T10:51:00.003-05:00

Welcome to my new blog.

This is a new venture for me in which I will be using this site to continue to provide my comments, observations as well as my recommendations concerning the markets, the economy as well as other topics as I've done for many years in other former websites, print and other medias.

Look for this site to spool up in coming days with regular postings. To be alerted to the postings sign up in the lower right hand corner box titled "subscribe".

Thanks for reading me.

- Neil George

The above is only opinion and does not represent and/or offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

By George Portfolio of Recommendations

2009-02-04T13:31:00.004-05:00

By George Portfolio of Recommendations
		,
Name (Exchange: Symbol)	Dividend	Advice
	Yield %	Buy/Sell/Watch
Long Haulers
Bayer (OTC: BAYZF)	3.8	Buy < 62
Monsanto (NYSE: MON)	1.4	Buy < 80
Southern (NYSE: SO)	5	Buy < 40
General Dynamics (NYSE: GD)	2.5	Buy < 60

Cash Cows
AllianceBernstein Glob High Income Fund (NYSE: AWF)	12.3	Buy < 11
BlackRock Income Opportunity (NYSE: BNA)	6.8	Buy < 11
PIMCO Strategic Global Govt (NYSE: RCS)	8.0	Buy < 12
Templeton Emerging Markets (NYSE: TEI)	10.3	Buy < 12
Western Asset Emerging Markets (NYSE: EFL)	7.5	Buy < 10
Vanguard GNMA Fund (NSDQ: VFIIX)	4.6	Buy < 11
AT&T 7.12% Mini (OTC: KTBB)	7.6	Buy < 25
DPL Inc. 7.875% Mini (NYSE: MJT)	8.7	Buy < 25
FirstBanks 8.15% Preferred (NYSE: FBS A)	14.7	Buy < 18
Qwest Communications 7.75% Mini (NYSE: PKH)	15.3	Buy < 25
Unum Group 7.4% Mini (NYSE: PJR)	12.3	Buy < 25
US Cellular 7.5% Mini (NYSE: UZV)	10.6	Buy < 25
Verizon 7.625% Mini (NYSE: PJL)	7.7	Buy < 25
Enterprise Products Partners (NYSE: EPD)	9.3	Buy < 25
Linn Energy (NSDQ: LINE)	15.3	Buy < 18
Iowa Telecom (NYSE: IWA)	12.4	Buy < 15
Otelco (NSDQ: OTT)	18.7	Buy < 11

Nibblers
AMR Corp 7.875% Mini (NYSE: AAR)	15.1	Buy < 15
AMR Corp (NYSE: AMR)	0.0	Buy < 7
CLP Holdings (HGK: 2, OTC: CLPHF)	4.8	Buy < 8
WP Carey Co (NYSE: WPC)	8.6	Buy < 25
Fred's (NSDQ: FRED)	0.8	Buy < 12
WD-40 Company NSDQ: WDFC)	3.7	Buy < 29

The above is only opinion and does not represent and offer to buy or sell any security and/or any financial advice. The opinions contained may not be suitable for all investors who should consult their own financial adviser before making any investment or other decisions. I may own some of these same securities noted in accounts under my control or for my benefit.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net or njgeorgejr@gmail.com or at 01-314-616-3325.

MONEY FOR NOTHING

2008-12-16T00:22:00.000-05:00

BG 16122008

MONEY FOR NOTHING AND YOUR CHECKS FOR FREE

Ok, so we now have the Federal Reserve Bank’s Open Market Committee (FOMC) trying to get the financial markets to lend money for nothing.

The FOMC came out today with its target rate for Fed Funds at a range – rather than a specific target rate of between zero and 25 basis points or 1 quarter of 1 percent. That’s fine – since the FOMC doesn’t lend money in the Fed Funds market – as only member banks actually lend or place cash in this market for needed or excess reserve balances.

But interestingly enough – the FMOC actually admitted this in its statement today as beyond its declaration of its target rate range for Fed Funds – it also empathized that the Fed was and would continue to operate as a direct participant in short term lending for member banks.

This of course is part and parcel of the huge ballooning of the Fed’s balance sheet as it is quickly becoming the world’s largest commercial bank – lending to pretty much any company – from banks to even commercial operating companies via its commercial paper lending and guarantee program.

And – this also is occurring as more and more companies are turning themselves into banks – to better grab more of this ever freer cash from Uncle Sam Inc’s banking division otherwise known as the Fed.

The trouble is that while many in the media might champion this move as a means of getting the credit markets moving and advancing – how many banks and financials do you know that are rolling out the red carpet to lend cash out at zero percent?

Well, perhaps more than you’d think.

That’s because that’s what is happening as banks place reserves with the Fed – they’re getting pretty much squat these days – and less after the moves today.

And for longer term parking of cash – Uncle Sam’s investment banking division – more commonly called the Treasury is reaping the benefits of free money as shorter-term bills and older notes are being placed and traded at or very dearly near zero rates of yield.

This can’t last of course – as too many investors out there can’t live on investing at zero rates of return.

And while you might ask – isn’t zero better than negative whatever rate of loss – there are more and more serious institutions that are ditching this whole thing that we’re doomed and putting more cash to work beyond just parking it with Uncle Sam for nothing.

Corporate bonds and bonds from governments beyond the US are what’s now not just being eyeballed by institutions – but are what’s being bought again. All it takes is more work to look at the underlying credibility of the issuers of bonds and lots of yield is available with spreads (the difference between underlying Treasuries and corporate or foreign government yields) that are at near term and in many cases historic highs.

This doesn’t mean trusting the ratings agencies – such as the sell-outs otherwise known as S&P, Moody’s and Fitch – but rather doing your own homework on the credibility of issuers.

This is also expanding to municipalities – especially when it comes to states that have plenty of power of taxation – and yet have bond yields that are multiples of underlying Treasuries.

My bottom line is that rather than sticking your head in a dark hole and accepting zero rates of yield – continue to buy and own some of my favorite bond funds that continue to pay well – and more importantly continue to earn well to afford to pay well.

In addition, what too many folks are still missing is that inflation isn’t dead. If you look at the recent consumer and producer data – the underlying core rates of inflation are still very much a threat running in the 3 to 4 percent range.

Meaning of course that zero rates of yield are locking in real losses of 3 to 4 percent over a year’s time.

Neil George is editor of By George.

WHAT WAS - WHAT COULD BE

2008-10-08T16:04:00.000-04:00

By George 08102008

WHAT WAS – WHAT COULD BE

By Neil George

Who really likes to live for the moment?

For most folks – we either love to reminisce about the past and what was – or we’re fixated on the future – and what could be if only this, that or the other thing would come true.

And when it comes to investing – this state of either fixating on the past or the future can end up costing you plenty in real money right in the here and now.

Too many of us look at our stocks and if they’ve been a winner – then we become too in love with what they did. And if they’ve been a loser – then we tell ourselves that if they just came back to our cost then we’d sell.

Of course – the winners of the past often become laggards in the future – just as the losers only get worse.

And then we just keep thinking wishfully of what might be in the future and try to look back at our past with rose-colored glasses.

This doesn’t just extend to individual investing – as it also is a fixation when it comes to economic policy.

For policy makers are always want to look back with answers to current issues from old playbooks – while continuing to divert our attention from pending problems with this concept by having us blissfully believe in what could be if only we go along with their plans for our tax money.

One prime example can be seen in what we’re already seeing in the rollout of what I see as the next market bubble in the making. And it’s called the era of the biggest government yet ever seen. With Uncle Sam turning into Uncle Sam Incorporated – we’re going to be experiencing a huge surge in direct government ownership as well as hundreds of billions to even trillions of dollars in Uncle Sam cash flowing to individual companies as well as whole industries.

And while we’ve seen some of the beginnings of this through the direct ownership stakes amounting to hundreds of billions of dollars in dozens of banks around the country by the US Treasury via the so-called Troubled Asset Relief Program or TARP – this program alone is just getting going.

The next mode is going to be in Uncle Sam’s Treasury buying into a host of other companies beyond the banks.

You’ve seen, heard and read about how General Motors and Ford want more cash from Uncle Sam. While they’ve already set up some 25 billion dollars to supposedly enable them to start building cars that customers might actually want to buy – these two companies already have fired up their lobbyists to push the Senate Majority Leader – Harry Reid (D-NV) as well as the Speaker of the House – Nancy Pelosi (D-CA) for even more cash.

These two are feeling their oats and thinking about how grand it was long ago when Uncle Sam ran various bits of the US manufacturing industry back in the ‘40s.

And they want the US Treasury via its TARP deal to buy directly into GM and Ford as well as perhaps becoming the financier of auto loans.

GM of course is claiming that it’s doomed. That with the last quarter whereby it lost some more money at 2.5 billion the company is saying it’s cash horde is running out.

Of course – the media is just enraptured with this news. Even though if you look at the quarterly filings – you’ll see that the losses of GM have actually fallen by more than 6 times from the prior quarter and some more than 15 times less than the same quarter last year.

GM also says that it has some 16 billion in cash on its current books – but that’s not enough. It needs reportedly some 11 to 14 billion in working capital to operate. And the threat is that it will go bankrupt without a huge influx of Uncle Sam cash.

This company must think that we as voters are indeed rubes.

For what you didn’t hear from GM – or the media for the most part is that late last week – just as it was whining about going under – that it just cut the ribbon on a new manufacturing plant in Saint Petersburg, Russia.

That’s right – using its own capital and that of investors and partners – GM is building new plants and rolling out new cars in Russia. That doesn’t sound like a company ready to implode now does it?

And it doesn’t sound as dire for it as the media and politicos might want it to sound to us.

In fact – if you look at the sales figures for GM – you’ll see that exclusive of its new Russian division – in Europe – GM revenues are climbing. And yes – at 2 plus percent that’s not much – but again – with the core economies in the EU in recession or headed into recession – that’s not bad.

But in Asia and Latin America – GM’s production and sales are soaring – yes soaring by more than 35 percent.

What gives?

Well, in other countries and other markets – GM is actually operating in the real world of designing and building products that the market wants and producing them in the real world of labor and regulatory conditions.

Where as back in the US – the company is still living in the past of making lower quality and less desirable products that fewer customers want.

So, it’s trying to spell out a dismal future for us to buy into that would mean no GM and countless thousands of unemployed workers killing our economy in the US if it doesn’t get a pile of cash.

And we’re buying it.

Meanwhile – what about the rest of the US automakers? What about Honda Motors, Toyota Motors, Porsche Holdings, Daimler (Mercedes Benz), Bayerische Motoren Works (BMW), Nissan, Hyundai and soon – Volkswagen?

These companies have all continued to bring in their own capital and have build and continue to expand or will expand their manufacturing in the US.

And their products sell.

So to GM – we should simply say – tough. Go fix yourself.

But that won’t fly in the current political landscape. We want to reminisce about how GM and others used to be. And we’re also keyed up to look to the future that’s being framed by lobbyists that would be horrifying without Uncle Sam’s cash.

Guess what this means?

Yep – GM is going to get its cash. And as for financing for GM cars – GMAC which is majority owned by Cerberus (headed of course at least officially by former US Treasury Secretary Snow) – it will more likely get US Treasury cash as well as credit from the other side of Uncle Sam’s financial division – The Federal Reserve Bank. This means that sooner than later – look for 0 percent down and 0 percent financing on giant lumbering SUVs on GM lots to come from Uncle Sam.

And of course this is just the beginning. And it would be too much longer – when someday we’ll look back at this move and wonder what were we thinking? And then we’ll hopefully be moving on to somehow get to a future again whereby Uncle Sam isn’t a partner in a seemingly endless streams of businesses and industries.

But for now – as it related to your investments – the here and now dictates that you need to continue to gear up to invest right along with Uncle Sam Inc.

This doesn’t mean buying GM perhaps – but it does mean eyeballing the increasing list of companies that are and will be getting big streams of cash – and from banks to defense contractors as well as healthcare insurers, alt-energy companies and even infrastructure companies – the future is being set up right now in the present. And why I continue to make my list of what you need to buy right now to invest alongside Uncle Sam Inc.

UPCOMING EVENTS:

World Money Show Orlando, Florida February, 2009

In addition, just in case any readers are interested in having me address your investment or professional group please email me with ideas or suggestions at njgeorge@att.net or phone 314-616-3325.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by email at njgeorge@att.net.

2007-12-01T16:01:00.000-05:00

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