Cliffs Natural Resources 4.875% of April 1, 2021

Here is a good tip for you. Cliffs Natural Resources is a good investment for anyone that has a 7.5 year time horizon. This bond is also good for someone that is investing in their own self-directed IRA. In my research, I came across a bond that is giving 5.654% until April 1, 2021. The CUSIP No. is 18683KAD3, It gives interest semiannually on Oct.1 and April 1. The bond is not callable until January 1, 2021. It has a Moody’s Rating of Baa3 and an S&P Rating of BBB-.

The bond recently sold at a discount, $952.91 giving $48.75 per year. That means that If you bought the bonds on Oct. 1, 2013 and kept it until maturity, you would get $365.63 plus $47.09 at maturity. That means in total you would make $412.72 on a $952.91 investment over 7.5 years. No, it is not the kind of return that you see in the movies but it beats the 2% returns that banks are giving and it does not come with the high risk that stock speculation offers you.

Steelmaking Megatrends 

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This company mines coal and Iron ore for the steel industry. Cliffs’ strategy is to build scale in the steelmaking raw material sector. There strategy is based on their belief in certain megatrends within the commodity industry. Demand is supported by continued global urbanization, specifically in emerging economies such as China, India and Brazil. Urbanization will increase the steel intensity rates, driven by housing and infrastructure. Rising disposable incomes also encourage construction related to leisure activities and personal services. This development is anticipated to increase demand and is not expected to be matched by corresponding increases in supply. Quality from mature producing regions is deteriorating, while logistical networks for new mining districts are becoming more complex and costly to build.

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Investing to its Conclusion

You would be surprised how many people contact me when they see some financial disaster on TV that cause the stock market to go down. Sometimes they may hear that the Fed is about to make interest rates go up and that bond prices will collapse. I just laugh at them and tell them that they watch too much TV. I am about 6 months away from full retirement so I just sold a large part of my IRA account to pay for my initial retirement plans. We will go into the conclusion of my plan in another blog.

But let’s look at how I did between the beginning of Winter 2008 to Sept. 20, 2013. For this 4 year 9 month time period, my portfolio increased 274.292%. That means my portfolio increased 4.812% per month. You can calculate that I made an average of 57.746% per year. In the past 9 months my portfolio increased 10.155%. This was done with 97% of my portfolio invested in Corporate Junk Bonds.     

Why did I do so well?

I did so well because I took advantage of the situation at hand. We went into the first Great Depression of the 21st Century. We are still in this depression regardless of what our political and financial leaders are telling you.  I did not try to fight the political news. I did not try to deny that the Great Depression is here.  I did not try to claim that one political leader had the answers and the other one did not.

But I studied the last Great Depression from 1929 to 1940. I knew that the real estate industry collapsed first. Then came the layoffs from industry and the stores. From 1926 to 1934 came the banking failures in increasing record numbers. Europe went into the depression first. 

Germany was coming out as the United States went in.  The United States did not get out of it until 1940 when we started making and supplying arms for World War II. Do you know that the Empire State Building in New York was built in 1929 but was not completely occupied until 1956?    

In 1929, as money became more valuable, the bond market went up until the 1940s. This was the key to my success in the bond market in the past 5 years. History has taught me that situations like this makes way to having long bull bond markets.

When business in America was collapsing, and Lehman Brothers filed for bankruptcy, the head of the treasury went into President Bush’s office and gave him the bad news. That is when most bonds in the bond market was selling between 50 to 80 cents on the dollar. This is why in December 2008, I started buying Corporate Junk Bonds aggressively. My return for these bonds was over 52% per year. As time went on, I had to buy bonds from the bond interest given at increasingly reduced rates to where my yield for the past 9 months was only 10.155%.  As you know, that is better than bank and CD rates. That is still a great return.

If you read the newspapers and watch financial TV in 2009 through 2012, they claim that buying bonds was too risky. I think that they just did not want people to buy corporate bonds because the brokers makes more money when they handle investors’ money going into stocks. Bonds must be paid before stocks. In bankruptcy, bonds are paid before stock. From this you can see that stock is riskier than bonds. From this you can tell who was and still is controlling what you hear about high finance.

Here is a laugh for you. Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. For the past 10 years, Fiscal Policy has been a failure (Policy by Congress and the President).  A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value. Government bonds rates are the bases for all interest rates in the nation including mortgages, car loans, and my bond investments.

Expansionary monetary policy (Controlled by the Federal Reserve) typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates. However, when short-term interest rates are at or close to zero, normal monetary policy can no longer lower interest rates. Quantitative easing may then be used by monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve. Quantitative easing raises the prices of the financial assets bought, which lowers their yield.

Quantitative easing can be used to help ensure that inflation does not fall below target. Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply), or not being effective enough if banks do not lend out the additional reserves. 

According to the IMF and various other economists, quantitative easing undertaken since the global financial crisis has mitigated some of the adverse effects of the crisis.

Perhaps the biggest market-moving event that seems like an inevitability to market participants in the coming years is the Federal Reserve's exit from quantitative easing. (QE), The bond-buying policy QE has been employed since the financial crisis, in the process growing its balance sheet to over $3 trillion in an attempt to stimulate the U.S. economy.

Right now, the Fed is buying $85 billion of bonds every month, indefinitely: $45 billion of U.S. Treasuries and $40 billion of mortgage-backed securities.

Perhaps the biggest market-moving event recently that seems like an inevitability to market participants in the coming years is the Federal Reserve's exit from quantitative easing (QE). This is the bond-buying policy it has employed since the financial crisis, in the process growing its balance sheet to over $3 trillion in an attempt to stimulate the U.S. economy. Right now, the Fed is buying $85 billion of bonds every month, indefinitely: $45 billion of U.S. Treasuries and $40 billion of mortgage-backed securities. Yet over the past three months, a vicious sell-off has gripped the Treasury market, sending bond yields soaring as fears that the Fed will begin to taper back the amount of purchases it makes each month have permeated the marketplace. The Fed has had QE, QE2, QE3, and QE4.

I see on TV that bond investors like me was in trouble. People would come to me telling me that I should sell before it is too late. Everyone claimed that the economy was picking up and that the Fed would stop its bond buying program. If this happened, yes my  bonds in my portfolio would fall like a rock. As a matter of fact, my bonds did fall about 15%. Then the Federal government went on TV and said that the bond buying program (QE) would continue. This made my bonds go back up in price 15% in two days.

The problem for the federal government and the people is that they never studied the Great Depression from a working persons point of view. You take away low rates and these companies will not sell a car, house, or anything else, the collapse will continue. Just the thought by the public that QE was ending made the economy start to slow down. So they announce that QE (I call it QE Indefinite) will continue. That means bond prices will continue to rise. This Great Depression will not end until the 2020 to 2030 time frame so investing in deep discounted Junk Bonds will continue to do well.

Where people go wrong!

People work for a living but only know how to spend money. This is what the media and society teaches most people. They see a movie on TV about making money in the stock market by some movie character and they think that this is how the market works. They see it as an electronic gambling system. You place your money on a stock and in a few days you make millions. This is what people say to me when I start talking about investing.       

If what you say is true, you would not be working.

People don’t know that it takes years to make investments grow. At the same time, people like me must eat, pay for a place to live, pay for clothing, and pay for children. If people did not have expenses then they can work for a few years while investing all of their paycheck then never work again. Even at that, don’t get sick because your medical bills will put you in the poor house.    

If what you say is true, you should be rich.

Again, that is TV talking. To become wealthy enough to stop working, you have to start very early in your working life, say 21 years old making a good paycheck or at least having few expenses (living at home with parent paying the bills).  Not all people who win the lottery is rich.

Some may hit for $1.00. Others hit for $1,000. Neither is enough to make you rich. The word rich is relative to where you are starting. A person who just got a job and has nothing but bills will not be able to start out investing enough with a large enough return to save over a million dollars. Many people who have become rich by investing in the markets did so because they started with millions to begin with. I am 62 years old and I just achieve enough in savings and resources to stop working completely. For 38 years I had other obligations that took priorities. 

My investment returns went to these other priorities. If I would have not started a family, stayed away from women, lived at my parent’s house, and worked then gone home for the past 38 years, I would have stopped working 25 years ago.

Talk to me when you make enough money and you don’t have to work.

I tell people how to supplement their income as I am doing it to show that it could be done. Some people don’t want to hear it because they never heard it before. Therefore, it can’t be right. In many societies such as with Black people, talking about money is the same as a person being “in love” with money. This is something that Black people do not do therefore they are left out of the money making process. They complain about Blacks not starting businesses but fail to understand that Blacks can gain control of corporations gaining employment for the next generation, and controlling local communities by investing in stock clubs.

So basically  the non-investor is about a lack of education and lack of priorities. In turn they promote the same in their families and in their circle of friends. They are left out of the business political process which controls the public political process. These people are usually followers not leaders.

Investing in Multifamily Houses

A Multifamily House

If you are starting out buying a property for the first time, you may want to look into multifamily houses. Here is the opinion of the "Independent Financial Portal" on the subject.

What exactly is a multifamily house? For the purposes of the real estate industry, a multifamily house is a freestanding building composed of from two to four separate living units, with each unit having its own bedroom, kitchen, and bathroom facilities. Some are structured with all of the units on a single ground level, while others may have one or more units on multiple floors. Still other types of multiplexes, as they're sometimes called, are made up of multi-floor units built side-by-side under one roof. These are commonly known as townhouses.

Many real estate investors, especially those new to the marketplace, prefer multifamily properties as their investments of choice. Let's examine some of the more common reasons for this popularity.

Multifamily houses provide a relatively easy entry into the real estate marketplace. If you don't yet own any real estate, you don't have very much cash at your disposal, or you want to combine your first home-buying experience with your first investment property, a multifamily house may well be the solution to your needs.

While not only providing physical shelter as your home, this type of investment can also be supported by the rental income you receive from it. Additionally, there are numerous federal, state, and community financing programs in existence that can help you purchase an owner-occupied multi-family house with little or no down payment. Qualification guidelines for these mortgages are generally less stringent than for any other type of investment real estate, and the rent from the unit or units that you don't occupy can be considered as part of your qualifying income.

Multifamily houses provide an opportunity for the investor to employ "sweat equity" to build real estate wealth. The maintenance demands of a multifamily property are not very different from those of a single-family house, and both owners and owner-occupants often find that they can save substantial amounts of money and build up sweat equity (increasing their property's value with direct labor) by doing much of the maintenance and renovation work themselves. Furthermore, the work can be done over time as cash becomes available and units become vacant and in need of renovation. This can be very appealing to investors looking for long-term capital gains. On the other hand, for those investors in search of a quick turnover more like that of the single-family fix-up property, the cash received from a multiplex's rented units can ease (or perhaps even eliminate) the financial burden of carrying the property while renovations to units, the exterior, or the property grounds are in progress.

Multiplexes can very often provide a substantial positive cash flow. A well-chosen multifamily property can be a long-term positive cash-flow investment. Because these properties are often managed by their owners, operating costs can be significantly reduced. Vacancy of a unit, however, can cut into the property's cash flow. In an owner-occupied two-unit house, for example, all property income ceases when the rental unit is vacant. In an owner-occupied four-unit home with one vacant unit, the income is reduced by one-third. So, if you're in the market for a multiplex and you know that you'll be depending upon rents to meet the property's debt servicing and operating costs, be very careful to choose a property in an area where rental demand is high and the vacancy rates are low - even if you have to pay a bit more for the property. The added income security will likely be well worth the additional expense. What's more, because the property is in a high-demand area it can generally be expected to appreciate more than similar properties in marginal locations.

It must be kept in mind; however, that ownership of multifamily real estate is typically management-intensive. It's a "hands-on" investment that often calls for the performance of routine maintenance, such as mowing grass, unplugging sinks and toilets, and replacement of the odd refrigerator. Especially at the outset, owner-occupants will usually always do their own managing because during that time the cost of a professional management firm would likely be too large for the owner's operating budget. Later, once several multifamily houses are in the investor's portfolio, a management company will typically be hired.

A multifamily property can be used as an effective first "building block" in a real estate wealth-building pyramid. A multifamily home is often the first property acquired by a beginning real estate investor. The capital needed for such a purchase is often relatively small and the potential resale market is quite large, including other investment beginners seeking their first properties. Although multiplexes generally sell less quickly than single-family houses, property turnover is usually still faster than that of small apartment buildings or commercial properties.

For nonowner occupants, a 1031 tax-deferred exchange can move the entire profit from the property's sale into another, larger multifamily structure. Using a different strategy, as an owner-occupant, you can sell your property after two years of living on the premises and receive the portion of the profit that's equivalent to your living unit tax-free (in a two-unit home, for example, half of the profit would be tax-exempt). With careful financing and a good track record of on-time mortgage payments, you can expand your investment into two multifamily buildings. You can then continue this pattern at periodic intervals to constantly increase your net worth.

On the other hand, if you prefer to hold onto your first owner-occupied multifamily property because you enjoy living there or because it's a solid source of present and future positive cash flow, you might consider another alternative. Once refurbishing, renovation and appreciation have increased your equity, you can refinance the property while you're still an occupant, thus taking advantage of owner-occupant qualification guidelines and interest rates. You'll then have down-payment cash for the purchase of another investment property.

But always be mindful to watch the numbers closely. When you refinance based upon appreciation and the improvements that you've made, you'll likely encounter higher mortgage payments. Be certain that increased rents will cover these larger debt service amounts. And keep in mind that you may also have higher municipal taxes if your improvements were taken into account during a tax reassessment.

What are the Advantages of Condo Ownership?

Condo on the Chesapeake Bay at the mouth of the Susquehanna River

Financing Your Property Were You Want to Live

General real estate financing can include a number of different lending vehicles and may come from a variety of sources. As it is with most forms of lending, real estate financing will hinge on the creditworthiness of the individual. It may also be impacted by the amount requested and the value of the property in question. General real estate financing is provided by traditional banking institutions, mortgage companies and credit unions. Loans may also be backed up through federal programs.

Four Advantages of Condo Ownership


I am old and I do not want to cut the grass anymore. I don’t want to do my own maintenance anymore. I do not want to clean up after a snow storm. So I am a prime candidate for condo living. Now if you are young and need a place to stay with the new wife, a condo might be first in your list of properties to buy.

Condo ownership is generally thought of as a step to home ownership, and there are many reasons it can financially prepare you for the demands of later owning a home. Generally speaking, condos are less expensive than comparable single-family properties. By owning and maintaining a condo first, you can set yourself up for the next step of owning a single-family home.

#1 Lower Down Payment

First-time home buyers in particular have a challenge when it comes to putting down a down payment. They do not have a previous property sale to supply them with income to do this, and many are young or in the early stages of their careers. As a result, opting for a condo with a low required down payment can make the process more affordable. On the flip side, an older couple looking to downsize or retire will also benefit from a low down payment. The difference between the sales price of a larger home and the money required for down payment can be used as extra spending cash in retirement when many people need it most. 

#2 Property Sales Value

The sales value of a condo can be driven upwards due to improvements to and the desirability of the general condo building. As a rule, condos in small buildings are less affected by bubbles and busts in the housing market than are condos in big buildings. However, even condos in large complexes can present great property sales value if there are not many other units for sale at the time you prepare to sell. In this case, you are offering a chance to buy into a building where few opportunities exist. You will be rewarded with a more competitive market and higher prices. 

#3 Amenities and Benefits

While you do have to pay homeowners' association fees in order to receive many benefits of condo ownership, these fees represent only a fraction of the cost of your total benefits. For example, if you would like to have a rooftop pool in the middle of Chicago, you may have to pay several millions of dollars. As a member of an HOA in a condo that has this benefit, though, you can enjoy your rooftop pool for only a few hundred dollars a month. Financially, the amenities offered by many buildings are a great bargain to individual homeowners.

#4 Lower Utility and Maintenance Fees

The cost to maintain a small property is much lower than the cost to maintain a large property. Even in a relatively large condo, you are not paying for items such as your roof, windows or driveway. While these costs do come out of your HOA fees, you are again sharing the cost with a number of homeowners. Further, it is less expensive to heat, cool, furnish and clean a condo than a large home. This can represent savings that may later be used to purchase a house. Or in the case of individuals looking to downsize, these savings can be spent on living enhancements.

My Opinion

After reading the opinion of the Financial Portal, let me give you my opinion. A condo or a home is not an investment and should not be treated as such. A condo or a home should be treated as a place to live for now and for a time where it no longer suits your family needs. Property values do not always go up as people found out in this 21^st century. So do not buy a property thinking that you are buying it to make money in the future.

Before You Buy a Condo: Know the Costs of Ownership

Before you buy a condo, consider the financial costs added to the sales price through maintenance and other issues. While condos often appear to be cheaper than townhouses or single-family properties, the hidden costs can actually make the price of owning a condo higher than the price of owning comparable single-family properties. 

In my opinion, condo timeshares like the one above are next to extortion. You own the condo for one or two weeks out of the year. You pay a condo fee and in some cases, they just go up every year to the point where you are paying $1,000 or more a year just to stay for 1 or 2 weeks. If you want to sell, good luck. No one will want to buy them because of the fees.

Condo in Heron Harbor, Havre De Grace, Maryland

Homeownership for living all year around is a different situation. But you better know the cost of what you are getting into before you get into it. The Condos in the picture above cost $589,900 to $799,900 to buy. The condos in Heron Harbor cost $256 per month in maintenance fees. Total taxes per year $9,925. Plus you have your utilities and insurances.

Below is information that I got from the Independence Financial Portal.   
    

#1 Condo Association Fees

The first consideration is the association fee required by a condo or homeowner's association. In many areas of the country, these fees can be moderate, such as a few hundred dollars each month. If you are purchasing a condo in a highly desirable area, though, the condo association fees can be prohibitive. It is not uncommon to find fees that represent 50 percent of your total mortgage cost along coastal areas or in the hearts of cities. Since you do not own any space other than what is inside your condo, these fees can often be wasted on improvements that do not raise the value of your property.

#2 Private Mortgage Insurance

If you buy a condo with less than a 20 percent down payment, you will be required to pay private mortgage insurance (PMI). Some mortgage companies will make this requirement on even higher down payments. Surprisingly, it can be hard to secure private mortgage insurance for some condominium purchases. This occurs because the value of a condo is highly variable based on the value of the building and comparable sales within the building at the time of sale. Since these factors can be unpredictable, many insurance companies refuse to insure condo mortgages. Having a mortgage without PMI may not be an option; where it is possible, it is expensive.

#3 Homeowner's Insurance

A condo is defined as a property with more than two shared walls. In a condo, you may have residents above or below you. You do not own public spaces around your condo, and this leaves them open to other residents of your building or even those passing through. As a result, condos are viewed as less secure than comparable townhouses or houses. Your homeowner's insurance will increase based on the safety rating of your condo. Further, if there is a claim anywhere in your building, you may see your personal homeowner's insurance rates go up as a result. This does not occur as directly in a neighborhood as it does in a multi-family complex.

#4 Resale Value

At the time you sell your condo, the sales price will be heavily dependent on the desirability of the building as a whole. Even a very desirable building will suffer if too many units are for sale at the same time. In this case, supply will be greater than demand, and the sales price of your unit will decrease. This is particularly true if the various units in your building are extremely similar. In this case, it is very difficult to differentiate your listing in a competitive market. Further, even if you make improvements to your property, you must always be vigilant about out-pricing the building. There is a price ceiling on most condo sales.