PREFERRED STOCK INVESTING

Yields on savings accounts and CDs less than 5 yrs to maturity do not cover inflation. You can find better yields among common stocks, though at best, at higher risk. Even better yields can be found among corporate preferred stocks at greater safety, though not as great as for savings accounts and CDs (http://www.money-zine.com/Investing/Stocks/Buying-Preferred-Stock/). Getting at least 6% dividends is easy among preferred stocks. Preferred stocks are usually issued in perpetuity but with a call provision after 5 yrs. Preferred stocks are thinly traded and some study should be done before buying them. Many issues are beyond their call date today so may be called at any time. The commonest price - par - for preferred stocks is $25/sh and, if called, you must be paid the $25/sh. During the crash of 2008-2009, some companies offered to buy your preferred stock at less than par, but you didn't need to accept that.

There are two main types of preferred stocks, those whose dividends are cumulative (where I am involved), and those for whom they are not (that I do not touch). An attractive feature of preferred stocks, however, is that so long as a dividend is paid on the common stock, the preferred stock dividend MUST be paid first. For cumulative preferreds, if a dividend is skipped, it must be made up before the company can issue dividends on their common stock. There are also those, mainly banks, who may skip the dividend for as much as 5 yrs, but they must be paid before maturity. If the company should go bankrupt, preferred stocks rank higher than common stock in the proceedings (Actually, I think this is not a very significant feature.).

Preferred stocks are thinly traded so in buying them, it is best to do so with limit orders so you don't pay too much for them. Selling preferred stocks can be a bit tricky, but you can get some protection by selling with stop orders. Because of the thinly traded nature of preferred stocks, in selling you may have orders filled below your stop order if that is the only bid around and sometimes you get your order filled in pieces over several trades. With brokerages such as Schwab, several trades during one day are covered by one fee charge, but, if the trading goes on to another day, you will be charged for each day.

There are a couple of things about preferred stocks that even the pros fear and that is if the company that has issued the preferred is bought out by another company. In this process, your preferred stock may be called at par (usually $25/sh), but, if not, the preferred may not be traded; however, you will continue to get your dividend payments. This is called "Waldenized" after a famous case. Sometimes a "Waldenized" preferred will be offered redemption below par, but you don't have to accept it. The second fear is of inflation. Inflation tends to push down the price of preferreds with their fixed dividend as the bond coupons increase. Thus you may only sell your preferred stock at a capital loss, but if you are happy with the dividend rate, this may not matter and you would keep it. Today with such low interest rates on bonds, savings accounts, and CDs, the dividends on preferred stocks is attractive and many preferred stocks are selling above par. For example, all our preferred stocks are selling at or above par right now, but this could change in a hurry if inflation showed its ugly head.

Preferred stocks may be rated by the rating agencies. To the best of my knowledge, the only preferred stocks getting a AAA rating by more than one rating agency are certain preferred CEFs (Closed End Funds) issued by Gabelli that guarantee a 10% payout of NAV on the ETF shares. Thus they have a mandatory dividend on their common stock so MUST pay the preferred dividend. For example, we have some GAB (Gabelli Equity Trust) with a AAA rating by two agencies. It is past its call date and has had a partial call for some reason.

Many people trading in preferreds, feel that the safest preferred is PSA (Public Storage a REIT - Real Estate Investment Trust investing in self storage). PSA raises money by selling preferreds (the better part of an alphabet's worth) and has no debt. Thus they are not beholden to the whims of the financial industry though they must service lots of preferred issues. We are overweight in PSA-D, for example, the lowest yielding preferred of PSA. It is past its call date so may be called at any time, but, as the lowest yielding preferred stock of PSA, it is likely that others may be called ahead of it. Also it is currently selling a bit above par so the company would call it at a premium to par, and we would get a small capital loss if we bought it at the premium price. If they should call the preferred below the call price, we would get a capital gain.

Much discussion of REIT preferreds and some others is given on: http://boards.fool.com/real-estate-inv-trusts-reits-100061.aspx?mid=29689949. You may look up individual preferred stocks at http://www.quantumonline.com/QuickStart.cfm. You will have to register, but it is free. Look under Income Tables/All Preferred Stocks. If you don't want to deal with the complexity of buying individual preferreds, you could buy a Exchange Traded Fund(ETF). One that I have owned in the past but happen not to at present is iShares PFF. It is a low cost way to acquire a basket of preferreds assembled by some pros.

WHAT THE SUPER COMMITTEE DECIDED

Did anyone think that the outcome of the Super Committee would be different from what occurred? Though the Super Committee is widely viewed as a failure, I don't think so. What they did was decide after considerable thought that the $1.2 billion automatic sequester of funds from the military and the discretionary budget was the best plan. After all, the Republican Party is all about increasing or at least preserving the wealth of the wealthy. So given the choice of having a tax increase on the wealthy or decreasing the military, neither of which they like, it is only natural that they would chose decreasing the military budget. The Democrats feature themselves as the party of the people so, given a choice of decreasing entitlements unless there is a tax increase on the wealthy or decreasing the discretionary budgets, neither of which they like, they would choose to decrease the discretionary budgets. All this was obvious from the beginning (http://stopcontinentaldrift.blogspot.com/2011/08/debt-ceiling-compromise-effects.html). Why is anyone surprised?

Of course, now efforts will be expended to overthrow the sequester. President Obama, however, has said that he would veto any attempts to do so. This seems to be an indication that he prefers the sequestration also.

I think that at least the age for early Social Security should be raised from 62 to 64, now that the age for full social Security has been raised from 65 to 67. I think anyone would be a fool not to take early Social Security. For heaven's sake, you get five years of reduced Social Security payments to do something with. Say you are getting $1,000/mo at the reduced rate, you will have accumulated at least $60,000 (assuming no COLA) before you would be eligible for regular Social Security.

THE DREAM (Biographical)

The other night I had a rather strange dream. Let me tell you about it. I had just graduated from high school, and I now felt very old and mature. I was walking around downtown when I noticed this peculiar store window. I was just about to cross the street, but something I saw in this window caught my eye so that I went to the window instead. Whether the store was a real one or purely dream work now escapes me; however, I do remember that the window contained a varied selection of clothes and sporting goods just sort of strewn around to simulate a careless look. You know what I mean. The general store type atmosphere in the big city, a secret refuge for Saturday sportsman and little boys. At any rate, hanging in this window in the back was this sweat shirt. Not just an ordinary sweat shirt but what we used to call football shirts when I was just a punk. It was yellow, and it had a piece of leather sewn on the chest which was in the shape of a football. I had owned one that was somewhat similar but that was long ago, and I had forgotten about it until now. The one I owned was blue though and also had three strips of leather on the left sleeve. All of a sudden the thought struck me of how nice it would be to own something like it again. You know, I had just decided to buy it when I remembered that I was too old for such things now. I turned and walked away.

1952

IS IT REALLY STARTING?

I have long wondered why the American electorate has been so docile under the present economic climate. Where are the demonstrations? In past downturns more mild than the present, there have been marches on Washington, D.C., particularly by farmers driving tractors into the Reflecting Pond and the like.

Seemingly a revolution of sorts was started by the so-called Tea Party group. I have found that group rather surprising in that many of the early members were unemployed; yet, their cry against the government was that it was too large and running up too great Federal deficits. They have had a lot of success in electing like-minded people to congress. Certainly the size of the Federal deficits is scary, but I have to wonder if they misread the electorate? It seems to me that a lot of the new people elected to congress were actually elected with expectations that they would do something about the job situation* rather than to try to cut down the size of government. Not much has been done so far, and I wouldn't be surprised if many of the Tea Party congressmen are returned to their private lives in the 2012 election. I'm also surprised by Tea Partiers willingness to eliminate such programs as Social Security and Medicare as many of the members are middle aged and not wealthy.

The Tea Party has been followed by the Occupy Wall Street (OWS) movement that is mainly objecting to economic inequality of incomes, high unemployment, the huge wages of those on Wall Street and the lack of any prosecutions of those responsible for the economic fiasco we have been undergoing since late in 2007, and the influence of corporations on the government.** One other message stood out to me in that many seemed to want their student loans to be forgiven. This has not been done although President Obama has lowered the percentage of income to 10% of discretionary income that must be devoted to paying off the student loans and reduced the number of years to 20 from 25 until the residual of the loan is forgiven (http://www.washingtonpost.com/blogs/44/post/obama-administration-announces-plan-to-ease-student-loan-burdens/2011/10/25/gIQAGbKrGM_blog.html). By an large, however, it appears to me that the OWS is still in a disorganized state although it has expanded across the country and even abroad. So the movement has struck a cord that seems to have considerable staying power. So far as I know, OWS is not yet backing certain candidates for election to congress with the possible exception of Elizabeth Warren. Whether this movement can get organized to have any real affect, remains to be seen.

* Also see: http://stopcontinentaldrift.blogspot.com/2011/01/whatever-happened-to-jobs-jobs-jobs.html

** http://en.wikipedia.org/wiki/Occupy_Wall_Street. Perhaps the most significant influence came with the Supreme Court ruling that companies are people. The Chairman of the Board therefore can give not only his own donations, but also donations from the company no matter what the employees or the stockholders might think.