My Greedy Friend’s First Quarter 2012

The above portfolio did very well from January 2009 to January 2010. Then the bankruptcies kicked in from January 2010 to December 2011. The increase value of the portfolio slowed. From January 2012 to April 2012 -- the portfolio value increase accelerated. The projections from May 2012 to April 2013 -- the portfolio value will increase with greater accelerating speed.

It is the end of the first quarter of 2012. That means it is time to talk about my greedy friends. No, I did not say my needy friends. They are truly greedy. To give you a little history about their investments, my friends had a 401K with their employer from 2001 to 2009. In December 2008 they lost their job. In that time, their mutual funds in their 401K lost 5% overall. They came to me for help because they thought that they can do better and they knew that I have done better with my IRA.

They wanted to transfer their 401k money to their new employer getting back into the same type of funds. I told them no, get into junk bonds. They told me that junk bonds have a bad reputation and they did not want to lose any more money. Besides everything that they read in the media told them that it was a bad idea. I showed them what I was doing with junk bonds. I asked them what they see me doing compared to what they heard about such investments, does it make any sense? So they decided to turn their investments over to me in January 2009.

Things went fine with their junk bond investments until three companies filed for bankruptcy in 2010 and 2011 causing their investments to stop rising as fast. Now I did not say my friends took a loss. I said that my friend’s portfolio did not rise as fast. They had a fit and called me all kinds of names. But given the choice of taking back control of their portfolio or letting me continue, the question never came up. Here is the reason why I call them my greedy friends. Their portfolio does not suggest that they are needy at all.

So far in 2012, they are making big gains. I gave a projection of what I expect their portfolio to do in the next 10 months to the end of January 2013. I expect bigger gains.

However, this will only happen if they have no large bankruptcies, no large bond tender offers by the companies in their portfolio, or they do not decide to withdraw money from their IRA. Keep in mind that their bond portfolio is riding on Oil Company bonds so if oil prices fall, their bond prices will fall about 10% until maturity. Bankruptcies and deflation are the only dangers to any bond portfolio. Hyperinflation will hurt the price of long term bonds and may give you, the investor an opportunity loss. In other words, it they were in the right investments you would make more money. If you take that position then you are like my greedy friends.

The Secret to Income Investing

I am not the brightest crayon in the box. My friends and relatives can tell you that. So I can’t do that complicated so call investing that you see on the cable TV channels. All I know how to do is make money. I invest for income and only income. I leave safety to the rating agencies, such as Standard & Poor’s or Moody’s. I try to buy corporate bonds that are as near “BBB” as I can get giving me the highest interest that I can get. My bonds give interest mostly on a semi-annual bases. When they give enough interest to buy a bond(s) I buy more bond(s). In my IRA, I make my annual contribution and buy more bonds. The more bonds I buy, the more interest flows into the portfolio, the more bonds I buy. This works very much like compound interest in a savings account.

An IRA allows me to accumulate interest and appreciation of the bonds tax deferred. Plus I get a tax deduction for my yearly IRA contribution. This is the secret to what you see in my greedy friend’s bond portfolio chart.

Planning For Financial Disaster

It did not matter who you were, towns did not want you moving in when they had no work for themselves in the Great Depression.

I was born 11 years after the end of the Great Depression ended. I was lucky to be born 6 years after the end of World War II. I grew up in the biggest economic boom that this country ever had. But all my youth the old people told me that the Great Depression is coming back and to prepare for it. As the old people died off, the younger people started dismantling the laws that stopped the problems of the great depression from starting up again. These laws such as “Glass Stiegel” mainly dealt with regulations of Banking, Brokerage, and Real Estate. They allowed all three of these industries to merge just like in the 1920s and it caused a 1930’s style Depression in the early Twenty-First Century. I spent the first 50 years preparing for the Great Depression that finally came. I was out of work for 2 years and did not make good money again for 5 years. I did not have a job that I wanted or a job that was stable for 8 years. I am still not to the salary that I had in 1998.

For most people this would cause a lot of stress in many people’s lives but not as much as the people who could not pay their bills or no longer had a roof over their head.

Segregation in the Great Depression

According to the American Psychological Association, as aftershocks of the Great Recession (first Great Depression of the 21st Century) continue to be felt, money is the most often named source of stress for Americans. In fact, in 2010, more than 75% of Americans named money as a significant cause of stress. At the same time, an American Psychological Association survey in August 2010 found that 73 percent of parents report family responsibilities as a significant source of stress. Combine stress from money worries with stress from family concerns and you have a serious situation. Not only can this kind of prolonged stress be emotionally draining and harmful to your family relationships, it can literally make you sick.

They say that one way to manage the stress is by taking steps to save money. When unexpected money problems arise, some simple cost-cutting measures can free up money for the essentials. Shifts in your standard of living can be uncomfortable; however, it’s important to view each of your expenses objectively and be realistic about what you can afford. What you need to remember is to keep a level head, act immediately and plan your finances accordingly. Hesitating or putting your budget planning aside could make things worse. You owe it to yourself and your family to remain confident and in control.

Unemployed and homeless Blacks in the Great Depression

Let’s look at the big cuts.

Home Mortgage — If you feel your ability to keep your home is at risk, immediately contact your mortgage holder or a certified HUD counselor to discuss your financial situation. You may qualify for a deferral, a loan modification, or alternative payment plans.

The Car — Can your family become a one-car family? Letting go of one of your vehicles could create significant cost savings (payments, gas, insurance, maintenance, etc.).

Recreation — You can still enjoy life without all the perks. Luxuries like dining out and weekend getaways can be replaced by home cooking, backyard parties, and exploring local parks, museums, and attractions.

You can also do little things that add up to big things.

Cash Only — Fair warning; it will be difficult, but try to pay for everything in cash or with a debit card. Using your credit cards unwisely during financial difficulties only digs you deeper in the hole.

Credit Surfing — Evaluate all of your credit card balances and interest rates. Find the cards with the lowest rates and transfer your balances. Weigh the cost of the transfer fee – will it be greater than the interest you save? – And be aware of the impact on your credit score of closing accounts vs. keeping them open. Finally, focus on not running your credit card balances back up.

Negotiating Lower Rates — I negotiate my credit card interest rates. Contact each of your credit card companies and ask if your interest rate can be lowered based on past payment history. If not, ask if there are alternative payment plans available based on financial hardship.

One thing that’s certain is that household costs are on the rise. Just take a look at what you’re spending on food and gasoline today compared to two years ago.

Adjust Your Minutes — The first thing I looked at was my phone bills. Evaluate your mobile phone plan as well as your land line bill in detail. Call your provider to ask if there is a less expensive plan. I went from a national brand cell phone service to a phone plan from Wal-mart and saved $75.00 per month without loosing any services that I needed. Also, consider if you can live without either your cell phone or your land line.

Cut the Cable — Reduce your monthly cable/satellite bill by eliminating premium cable. By leaving my cable provider and going with a package deal (Cable, phone, and Internet) from another, I saved about $25 per month.

Clip Coupons — Using coupons at the supermarket is a smart and easy way to save money. Just be sure that the final price (using the coupon) is less than the generic or store-brand alternatives. I buy generic brands first before I look at name brand items.

Buy in Bulk — Consider shifting your focus to the future when purchasing household items. Lower-priced, higher volume choices make sense for products that you need now and will need in the future such as toilet paper, paper towels, cleaning supplies, computer paper, and etc. If you are buying for a big family then the same goes for select food items, especially those that keep well or can be frozen. If you can buy items in a co-op with other family members or friends with an agreement to purchase giving a percentage of goods to an individual or family, you will be able to get considerable savings.

Thrift Shopping — Consider a trip to your local thrift store before you head off to the mall. Many second-hand clothing and household items are in good condition and cost substantially less than those in typical retail stores.

Save Gas, Drive Less — Keep in mind that every time you drive your car, it costs you money. If buying a new car, look at gas mileage first. Don't buy a car that you think will make you popular just to find out that it takes $60 every three days in gas to run. Consider car pools, ride shares, etc. Walk or bike to local destinations. It will save in fuel costs and save the environment too!

Newspapers and Magazines – Why purchase newspapers and magazines when you can read the same thing off the Internet? Use the Internet as much as you can for news and information in relation to buying extra media. Use the media to find shopping coupons for the store that you use. Go to the store website and see if they offer what you are looking for in coupons.

Stock market peaked in July 1929 then crashed to its low in July 1932.

It did not recover until 1954.

The American Psychological Association says; during tough times make sure to take care of your emotional and physical health, as well as your fiscal health. Recognize that not dealing with stress effectively could lead to unhealthy activities such as smoking, drinking, gambling or eating disorders. Your unhealthy activities may lead you to spend time in jail or in a hospital. It may kill you. Be aware of this and seek help if you think you’re seeing the signs of a problem.

Coping with financial hardship isn’t always easy. That is why you must prepare for the bad time before they come. They do not ring a bell on Wall Street when bad times hit. You don't see it in your local newspaper or on National TV. You usually feel the stress months or years before they start talking about it in the media.

Bond Investment in GTE North Inc.

Since the pickings in the short term and intermediate corporate bond market is pretty slim, we have to go out to the late 2020s. Let’s look at a company that I do not own, GTE North Inc. They have a bond that is S&P BB with a Cusip. Number 362337AK3. It pays twice a year.

GTE North Inc. 6.73% of 02-15-2028

It has an YTM of 9.089% and matures on Feb. 15, 2028. That means that if you bought the bond on April 15, 2012 at $803.50, you would get $196.50 in bond appreciation and $1,009.50 over 16 years. That means on an $803.50 you could make $2,019.59 by February 15, 2028. If you are 50 or younger, this would be a good investment in your IRA.

Who is GTE North Inc.?

Frontier North, Inc. is a local telephone operating company owned by Frontier Communications.

History

Frontier North was originally founded as Contel North, Inc., incorporated in Wisconsin in 1992.

GTE acquisition of Contel

Contel was acquired by GTE in 1993. Following its acquisition by GTE, Contel North was renamed GTE North, Inc.

In 1993, Iowa, Missouri, Minnesota, and Nebraska were split off from GTE North into a new company called GTE Midwest, Inc. ConTel of Illinois, ConTel of Indiana, ConTel of Pennsylvania, and ConTel Quaker State were all merged into GTE North.

Acquisition by Verizon

In 2000, parent company GTE was purchased by Bell Atlantic, becoming Verizon Communications. At this point the company's name was legally changed to Verizon North, Inc.

Sale to Frontier

In 2009, Verizon Communications created a company, New Communications ILEC Holdings, to be sold to Frontier Communications. Verizon North was included with the new company. Frontier purchased the company in 2010. Verizon North's operations in Pennsylvania were spun off into a separate company called Verizon North Retain since those operations were not included in the sale to Frontier. That company was merged into a new company named Verizon North in 2010. The sale became final July 1, 2010, and the company's name was changed to Frontier North, Inc.

Source

The description above came from the Wikipedia article GTE North.