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TIP OF THE WEEK - Gold is a crisis hedge. Own some before the next crisis.

Gold is a crisis hedge.  Own some before the next crisis.

Jason Brizic

October 14th, 2011

Gold is a crisis hedge.  Rich people buy gold when they are fearful.

There are several good reasons for the wealthy to be fearful right now.  They own more that 80% of all stocks and bonds.  The European sovereign debt crisis is real, the USA will be bankrupted by welfare and warfare programs, and the Chinese economic bubble is going to pop.  Bonds aren’t safe, stocks aren’t safe, and interest rates are at historic lows in many economies.  Gold is a refuge from these crisis events that will not be solved through political means.

The gold price will continue to go up so long as central bankers run their printing presses.  Central bankers such as Ben Bernanke believe in Keynesian economics.  Keynesian economics can be summed up in four words: “Deficit Spending Overcomes Recessions”.  It doesn’t work, but they is what they believe and they are in charge of governments and central banks.

The Federal Reserve under Ben Bernanke has tripled the monetary base since 2008.

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Most of this money is being held by the large commercial banks as excess reserves.  It is not being loaned into the economy.

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Despite gold’s price increases it has not increased in proportion with the inflation of the monetary base.  It has not risen as much because most of the money created by the Federal Reserve has not flowed into the economy to increase the prices of everything.  The newly created money is locked away in the excess reserves of the large commercial banks.  If they were to lend it out, then prices would rise more than the 300% increase in the monetary base due to fractional reserve banking process.  Basically, one dollar added to the monetary base could become 7-10 more dollars in the M1 money supply (depending on how profligate the bankers loans are).

These are the best gold prices since the July-August 2011 timeframe.  Take this opportunity to make your first purchases of some gold coins.  Politicians will announce solutions to the sovereign debt crisis, the FED will announce better economic numbers, and the Chinese will deny they are in a bubble until it obviously pops.  Don’t believe them.  Greece will default.  They are the first domino to fall.  Nobody talks about the Medicare and Social Security unfunded liabilities.  They are too huge.  They are dozens of trillions of dollars.  The Chinese mercantilists have been inflating they currency and their economy.  When they stop their will be a severe recession in China.

Go to www.apmex.com and take a look at the one ounce gold coins from your country’s mint.  Then buy one if you have none already.  I had a good experience with American Precious Metals Exchange in the past.  I get no commissions or anything from them.

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

A Rebuttal of An Interview With AGNC's Chief Investment Officer Gary Kain

I think that people who are investing in mortgage REITs are chasing dividend yields and ignoring the downside risk of lower earnings, dividend cuts, and the lower asset values.  This article from Seeking Alpha contributor, Todd Johnson, embodies what I’m talking about.  The article’s contents are indented and my comments should be aligned to the left (not indented).

An Interview With American Capital's Gary Kain

37 comments | by: Todd Johnson October 11, 2011  |  about: AGNC, includes: ANH, CIM, CMO, CYS, HTS, IVR, MFA, NLY, TWO

Notice that there is no explicit Federal guarantee.  Besides, even if there was an explicit Federal guarantee that wouldn’t mean anything either.  The US federal government is running near a $1.5 trillion annual budget deficit.  The budget annual budget deficits will grow when the country lapses into another recession.  There are deficits as far as the eye can see.  The biggest ponzi schemes: Medicare, Social Security, and the FDIC are running in the red now.  Don’t put your investment/savings faith in governments ability to perpetuate their ponzi schemes.

On Monday I had the fortunate experience to interview Gary Kain. Mr. Kain is the President and Chief Investment Officer of American Capital Agency Corporation (AGNC). American Capital Agency Corporation is a mortgage real estate investment trust (mREIT). American Capital Agency invests in only Government Sponsored Entity (GSE) mortgage backed securities (MBS), an agency-mREIT owns MBS which possess an implicit Federal guarantee. The stock currently pays a 21% dividend. The company has paid a quarterly $1.40-dividend, per share, for 9 consecutive quarters.

There are four new risks listed in the most recent 10Q statement.  Each of them had further explanation that should raise your concerns.

·         We have no employees and our Manager is responsible for making all of our investment decisions. Certain of our Manager’s officers are employees of American Capital and are not required to devote any specific amount of time to our business and each of them may provide their services to American Capital, its affiliates and sponsored investment vehicles, which could result in conflicts of interest.

·         We may change our policies at any time without stockholder approval, including our investment policy, which may adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends or distributions.

·         Federal Reserve programs to purchase securities could have an adverse impact on the agency securities in which we invest.

·         The market price of our common stock may fluctuate significantly.

Gary provided an enormous amount of information during the course of the interview. He answered every question I posed to him. I do not have his breadth of knowledge. Please visit the latest SEC 10Q for any issues which need clarification.

I would like to share my interview thoughts in this article. First, I would like to sincerely thank Gary Kain for taking the time for the interview. His professional attitude and industry knowledge were very impressive and illuminating.

Notice the dividend payout ratio at 106% estimated for the year 2011.  This is a warning that AGNC will not be able to keep paying its $1.40 quarterly dividend with current earnings.  This measurement of dividend safety will only get worse as AGNC issues new shares multiple times per year, to raise capital, to leverage 8x, to buy more agency securities.


click to enlarge

AGNC does not disclose which 26 counter parties it has agreements with.  This is very opaque.  Perhap they are doing business with AIG, Lehmen Bros., Bear Sterns, or some of the big European banks who foolishly leant money to the PIIGS (Portugal, Italy, Ireland, Greece, and Spain).  We don’t know, but Gary Kain says, “Trust me.”  Corporate executives are paid to lie.  Do you need proof?  Look at what any executive of a bankrupt company said before the bankruptcy.  Enron’s Chairman, Ken Lay, is a good example that most people are familiar with.  Counter parties can change the amount they are willing to lend in a moments notice.  This is the modern bank run.  Financial institutions are borrowed short and lent long.  This is how Lehman Bros. went down so quick.  Their lenders cut off their access to short term funding.

Liquidity Risk

My first question concerned liquidity risk. I asked if the Euro sovereign-debt could carry over to American Capital Agency's 26 counter parties. The counter parties provide liquidity for repurchase (repo) agreements. Gary confirmed this was not the case. In fact, counter parties have "increased lines" for repo agreements. Gary discussed this aspect with an example. If a counter party had a $1.5 billion lending line to the company, in some cases that has been raised to $2 billion.

If there is a rise in the one-month repo rate, the increase is likely to be limited to 5 basis points. At present time, the one-month repo rate is approximately 25 basis points.

The US is going back into recession.  The unemployment rate is going to climb.  More people will default on their mortgages.  The GSE will have to guarantee the payments on the agency securities.  There will be prepayments.  This will hurt AGNC’s book value as some of the formerly prime MBSs become more toxic.  Also, there will be prepayments from those who can refinance at historic low interest rates.  This will be front page new in 3-6 months.  I don’t think the GSE’s will break their promises until they run out of money.  If the GSEs fail to guarantee the MBSs, then their book value will fall even more.

I watched the presentation that Gary Kain gave in September.  He did a good job explaining the coming prepayment risk.  Watch it here: http://wsw.com/webcast/jmp15/agnc/ .  Of note is that 34% of AGNC’s portfolio are susceptible to high prepayment risks.  At the end of his speech on slide 10 of his presentation he said, “Prepayment speeds are going to dominate our results [over the next six months].”  You need to hope that the models are based on Keynesian economics.  If they are, then the forward yield curves will be optimistically steep.  If they are grounded in Austrian economics (this is unlikely), then the forward yield curves would be flat or inverting because of the coming recession.  We read this at the bottom of page 7 in the latest 10Q report:

“We estimate long-term prepayment speeds using a third-party service and market data. The third-party service estimates prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, current mortgage rates of the outstanding loans, loan age, volatility and other factors. We review the prepayment speeds estimated by the third-party service and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate the reasonableness of the prepayment speeds estimated by the third-party service and based on our Manager’s judgment we may make adjustments to their estimates. Actual and anticipated prepayment experience is reviewed quarterly and effective yields are recalculated when differences arise between the previously estimated future prepayments and the amounts actually received plus current anticipated future prepayments. If the actual and anticipated future prepayment experience differs from our prior estimate of prepayments, we are required to record an adjustment in the current period to the amortization or accretion of premiums and discounts for the cumulative difference in the effective yield through the reporting date.”

Prepayment Risk

This is the essential - and core aspect of the interview - area of focus. Gary reiterated this point on numerous accounts. He said, "In 3-6 months time, the focus will be on how we handled prepayment risk." American Capital Agency is clearly focused upon this issue. The company addressed this topic very clearly at the September 26th JMP Securities Financial Services and Real Estate Conference.

The company has focused upon owing GSE-MBS with the lowest prepayment risks. The GSE-MBS with the lowest prepayment risk include:

1.    GSE-MBS with low balances,

2.    GSE-MBS associated with the Federal Housing Finance Agency's (FHFA) Home Affordable Refinance Program (.pdf) (HARP).

The company, as of June 30th, has over 66% of its GSE-MBS portfolio invested in the two above categories. American Capital Agency was proactive in taking this stance prior to Federal intervention coming to page one of the Wall Street Journal. Gary reiterated during the course of the interview that AGNC's management and staff are focused upon maintaining or increasing American Capital Agency's book value per share. "We are not looking for any home runs in our book value", [but only to do our best to] "maintain or increase" [the book value per share].

If there is one key aspect this article should communicate is the impact of "prepayment risk".

Hedging Practices

I was curious to know if the company used "hedging" to only hedge its positions, or also to "speculate" on a high-probability event. Gary confirmed the company's hedging practices are designed to be agnostic towards the noise on the markets. His staff hedges the GSE-MBS to protect the book value per share. Gary wants to be able to walk into the office tomorrow and have a sound portfolio regardless if interest rates are "increasing or decreasing".

Gary commented, "we don't know how much is already priced in the markets. It's the same as with the stock market." My question resonated because I wanted to know if a high probability of "Operation Twist" (ie, the Fed selling short-term Treasury Bills and purchasing longer duration Treasury Bonds) was likely, would the company position themselves based upon this likelihood? The answer was "no". The focus is to be consistent and neutral on agency MBS price movement. Clearly, the company is focused upon protecting the book value and be a consistent performer.

Gary took the time and patience of Job to explain the "hypothetical yield sensitivity analysis" for prepayment risk based upon the Constant Prepayment Rate (CPR), which is the percentage of principal that is prepaid over a period of time on an annualized basis. A couple of notes to highlight the prepayment risk:

·         The highlighted "green" numbers reflect the percentage of prepayments in a given year,

·         The highlighted "yellow" numbers reflect the net interest rate spread,

·         The highlighted "salmon" numbers reflects the reflect on equity based upon an 8x leverage.

The key issue is Gary and American Capital have focused upon reducing the CPR a) to benefit the net yield spread, b) to benefit the return of equity, c) to benefit the book value per share, and d) to benefit the dividends for shareholders: "institutional and small". The company is 100% aligned with the goals of the common shareholder.

You might be asking yourself what constant repayment rate AGNC thinks they are going to experience in the near future.  You should be asking yourself this because it greatly affect the company’s financial results.  The answer lies on page 15 of the latest 10Q report.  We read.

“The weighted average lives of the agency securities as of June 30, 2011 and December 31, 2010 incorporates anticipated future prepayment assumptions. As of June 30, 2011, our weighted average expected constant prepayment rate (“CPR”) over the remaining life of our aggregate investment portfolio is 10%.”

I believe this is overly optimistic.

Gary Kain used to work for Freddie Mac.  You have to be Keynesian to work for a Government Sponsored Enterprise.  Keynesians are leading the world off and economic cliff.  Need I say more.

Benefits of Freddie Mac Experience

I asked Gary what benefits were gained by his extensive Federal Home Loan Mortgage Corporation (“Freddie Mac") work experience. There were some very intriguing responses on this issue.

·         Gary's Freddie Mac experience required managing a "40 to 50x leveraged portfolio". This is in stark contrast to a current 8x leverage rate. He gained a greater "respect for hedging" when dealing with a high leverage rate.

·         He learned how the GSE operates and thinks. Gary gained insight into the regulatory oversight as a GSE manager.

·         Historically, mREITs traded GSE adjustable rate mortgages (ARMs). Gary's Freddie Mac experience was, historically, with both ARMs and fixed rate mortgages. It wasn't until much later did the publicly traded mREIT industry move more to the the fixed rate mortgage segment.

Leverage works both ways.  Just ask Lehman Bros and Bear Stearns.  More leverage will make mREITs a taller house of cards.

Will the mREIT Industry Expand its Leverage Rate

Presently, the agency-mREIT leverage rate is approximately 7x to 8x. This is historically lower than prior leverage rates. Gary believed the move, in the future, will offer opportunities to increase leverage. Presently, there are GSE unknowns which must sort themselves out.

GSEs will be shrinking in market size over the next 7 years. The ability to increase leverage levels upward from a 7x-leverage rate to higher levels clearly is an opportunity for the agency-mREITs once there is stability amongst the Euro sovereign debt, SEC 60-day review period, Fed Operation Twist, Treasury programs, and Policy Risk - HARP. Gary's focus is ignoring the noise and recognizing what truly matters. Time will pass and well-prepared companies will be at the center of attention.

This is expected.  The profits that the current mREITs are generating are the signal to other entrepreneurs to enter the mREIT markets.  More competition will bid up MBS prices all other things being equal.  This will lower profits at the existing mREITs.  What bothers me is that this is an artificially lucrative market caused by perceived government guarantees of MBS.  That means that capital will be misallocated.  Someday there will be a bust when the next financial crisis hits.

Backlog of mREIT IPOs

I wanted to know Gary's thoughts on the backlog of mREIT initial public offerings. The SEC is asking for feedback on a couple of issues:

·        

o    The SEC, as of August 31st, is seeking "Public Comment on Asset-Backed Issuers and Mortgage-Related Pools Under Investment Company Act".

o    The SEC, as of August 31st, is seeking under a separate concept release, public comment on "interpretations of a provision in the Investment Company Act – Section 3(c)(5)(C) – that may be used by some companies engaged in the business of acquiring mortgages and mortgage-related instruments such as some REITs".

Agency mREITs provide a fluid buy and sell marketplace for the $10 trillion mREIT sector. There are, however, a few companies who are interested in entering this sector. It is important to note the difference between a non-agency mREIT and an agency mREIT. Agency mREITs own only GSE-MBS implicitly backed by the U.S. Federal government.

One of the companies who is interested is Pimco. Pimco's "Bill Gross" is almost synonymous with the word "bond". He has certainly gained a following over the years. Pimco would like to enter the mREIT sector, per its April 5th filing.

My bet is with Benjamin Graham and Austrian economics.  Graham recommended that average investors should not own financial stocks and insurance stocks because you don’t know what is really going on in those companies from their reporting.  The Austrian school teaches that central banks cause the boom-bust cycle.  The Federal Reserve’s actions caused the financial crisis of 2008 and they are also the source of the coming crisis in 2011-2012.  Keynesians predict that the stimulus will get economies out of recession, but the stimulus has noticeably failed.  The Austrians predict that stimulus makes things worse.

In full disclosure, Jeffrey Gundlach, chief executive of DoubleLine Capital LLC and a veteran of more than 20 years in the industry, said in August he was passing on the mREIT sector. Mr. Gunlach recently discussed his desire for absolute returns instead of political ambitions. Mr. Gunlach stated to the Wall Street Journal, "I'm too old to raise money then go around the world and apologize," he said. Time will tell who had the insights and knowledge to prepare accordingly. On the agency mREIT sector, my bet is with Gary and American Capital.

Gary said as the GSEs exit the market place over the coming 7 years, there will be ample room for new mREITs to enter into the $10 trillion market place. The annual GSE MBS exit will result in shrinkage amounts of "$150 million to $200 million per year".

Summary

He calls at least 34% very little exposure.  That is laughable.  Operation Twist will make things worse for AGNC.  So will the next FED operation after Twist, and the next one, and the next one after that.  The Keynesians all think the next stimulus is the one that will work.  This is nonsense.

American Capital Agency has very little exposure to GSE-MBS with "high prepayment risks". Management is cognizant of this risk and addressed the risks before Fed Chairman Bernanke came in with Operation Twist and CNBC had the topic as headline news.

I concluded the interview with complete confidence in Gary Kain's leadership and industry expertise. Gary was willing to discuss the challenges, opportunities, and unknowns. American Capital Agency has a leader to tackle any Federal government action, interest rate move, and prepayment risk in the best interests of shareholders.

Know the real risks of owning AGNC stock before you buy it.  To read all my critiques of AGNC click here: http://www.myhighdividendstocks.com/category/high-dividend-stocks/american-capital-agency-corp

I believe the interview provides insights on the rewards of owning AGNC stock. The company has produced industry-best returns. The company is aligned with achieving a solid book value per share, dealing with the political and Euro sovereign-debt issue, and provide outstanding absolute positive shareholder returns. What more could a common shareholder desire?

mREIT-Sector Peer Comparison

For background purposes, directly blow is a table showing the mREIT sector's financial performance. The chart assumes dividends are not reinvested. The dividends are assumed to be kept in cash.

Disclosure: I am long AGNC, CMO, CYS, HTS, NLY, TWO.

I don’t own AGNC or any other financial stock.

Link to the original Seeking Alpha article: http://seekingalpha.com/article/298768-an-interview-with-american-capital-s-gary-kain

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A First Look at Lockheed Martin (LMT)

A Seeking Alfa contributor said that Lockheed Martin (LMT) was one of 17 stocks that could double its dividend payments.  It sounded like a recommendation to buy to me.  So I became curious about Lockheed’s rise to almost becoming a high dividend stock yielding above 6%.

http://seekingalpha.com/article/298185-17-high-dividend-stocks-that-can-afford-to-double-dividend-payments

I used to work for Lockheed Martin.  The stock was near $52.00 per share when I started working there in 2004.  When I left in 2007 the stock price was hovering around $111.00.  The stock has fallen to $75 since that time.  I think it will fall still lower with government budget cuts that will not go away due to over promises on welfare and warfare.

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Lockheed Martin (LMT)

Market price: $76.32

Shares outstanding: 335.62 million shares

Market capitalization: $25.61 billion

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Lockheed’s stock fell to $53.10 at the bottom in March 2009.  LMT stock traded at 6.2 times average adjusted earnings at the bottom.  I think the coming worldwide recession will give you an opportunity to buy LMT much lower than it is today due to government budget cuts.

Dividend record:  LMT is a steady dividend payer and grower as you can see in the last five years of dividend payment history below.

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Dividend: $1.00 per share (quarterly) starting at next dividend payment

http://www.reuters.com/finance/stocks/LMT/key-developments/article/2404076

Dividend yield: 5.2%  [$4.00 (annual)/$76.32 share price]

Dividend payout ratio: 53.2%  [$4.00 dividend/$7.51 estimated 2011 EPS]

Earning power: $8.57 per share @ 335.62 million shares

(Earnings adjusted for changes in capitalization; LMT has been buying back shares)

            EPS                 Net inc.          Adj EPS          Shares

2006    $5.80               $2,529 M        $7.54               436 M

2007    $7.10               $3,033 M        $9.04               427 M

2008    $7.86               $3,217 M        $9.59               410 M

2009    $7.78               $3,024 M        $9.01               389 M

2010    $7.94               $2,926 M        $8.72               368 M

2011E  $7.51               $2,521 M        $7.51               335.62 M

Six year average EPS = $8.57

Consider CONTRARIAN buying below $68.56 (8x average adjusted EPS)

Consider VALUE buying below $102.84 (12x average adjusted EPS)

Consider INVESTMENT buying between $102.84 and $171.40 (8x -12x average adjusted EPS)

Consider SPECULATIVE selling above $171.40 (20x average adjusted EPS)

Balance sheet: I don’t like the huge run-up in liabilities and the corresponding reduction in shareholder equity (this should be investigated).

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Book value per share: $9.24 (TTM)

Price to BV ratio: 8.25 (not good)

Current Ratio: 1.15 (> 2.0 is good)

Quick Ratio: 0.76 (> 1.0 is good)

Financial Leverage: 10.86 (most recent quarter; not good)

Conclusion: Lockheed Martin pays a moderate dividend that is fairly safe right now.  It would be tempting to buy below $68.56 per share, but beware of the impact of government budget cuts.  I think that $8.57 average adjusted earnings will continue to fall as the government budget cuts grow.  Lockheed’s balance sheet is weak.  This would scary me away from the stock until I could figure out why the liabilities skyrocketed in 2008.  There has been no visible improvement in the balance sheet yet.

Disclosure: I don’t own LMT.

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Safe Bulkers will report 3Q2011 financials on October 17th, 2011

One of my favorite high dividend stocks, Safe Bulkers (SB), will report its 3Q financials after the market closes on Monday October 17th, 2011.  Unnamed, faceless Wall Street analysts expect between $1.43 - $1.53 in earnings for 2011.  SB earned $0.41 in 1Q2011 and $0.27 in 2Q2011 for a total of $0.68 for the first six months of 2011.  Safe Bulkers needs to earn $0.38 in each of the next quarters to meet estimates.

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They might meet these estimates because the Baltic Dry Index has increased slightly in 3Q2011 compared to 2Q2011.  The stock price will get hammered if the S&P turns down, the Baltic Dry Index turns down, or it the EPS numbers are below estimates.  We haven’t seen the bottom in Safe Bulkers yet.

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press release

Oct. 11, 2011, 9:26 a.m. EDT

Safe Bulkers, Inc. Sets Date for Third Quarter 2011 Results, Dividend Announcement, Conference Call and Webcast

Earnings Release: Monday, October 17, 2011, After Market Closes; Conference Call and Webcast: Tuesday, October 18, 2011 at 09:00 A.M. EDT

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ATHENS, GREECE, Oct 11, 2011 (MARKETWIRE via COMTEX) -- Safe Bulkers, Inc. (the Company) /quotes/zigman/512899/quotes/nls/sb SB +2.21% , an international provider of marine drybulk transportation services, announced today that it will release its results for the quarter ended September 30, 2011 after the market closes in New York on Monday, October 17, 2011. The Company also expects to announce the declaration of a dividend for the third quarter 2011 at that time.

On Tuesday, October 18, 2011 at 9:00 A.M. EDT, the Company's management team will host a conference call to discuss the financial results.

Conference Call details: Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1 (866) 819-7111 (US Toll Free Dial In), 0(800) 953-0329 (UK Toll Free Dial In) or +44 (0)1452-542-301 (Standard International Dial In). Please quote "Safe Bulkers" to the operator.

A telephonic replay of the conference call will be available until October 25, 2011 by dialing 1 (866) 247-4222 (US Toll Free Dial In), 0(800) 953-1533 (UK Toll Free Dial In) or +44 (0)1452 550-000 (Standard International Dial In). Access Code: 1859591#

Slides and audio webcast: There will also be a live, and then archived, webcast of the conference call, available through the Company's website ( www.safebulkers.com ). Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About Safe Bulkers, Inc. The Company is an international provider of marine drybulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes for some of the world's largest users of marine drybulk transportation services. The Company's common stock is listed on the NYSE, where it trades under the symbol "SB." The Company's current fleet consists of 17 drybulk vessels, all built post-2003, and the Company has contracted to acquire 10 additional drybulk newbuild vessels to be delivered at various times through 2014.

Link to original press release: http://www.marketwatch.com/story/safe-bulkers-inc-sets-date-for-third-quarter-2011-results-dividend-announcement-conference-call-and-webcast-2011-10-11?reflink=MW_news_stmp

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On The Recent Gold Pullback: Observe The Fundamentals

On The Recent Gold Pullback: Observe The Fundamentals by Peter Schiff
 
He states the reasons why the recent pullback in the gold price is an opportunity to buy cheaper.  I agree with him.  Buy gold coins while worldwide stock markets tank.  Buy high dividend stocks near the bottom.
 
 
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The Greatest Anitwar Ad Ever

The Greatest Antiwar Ad Ever
 
 
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Safe Bulkers, Inc. Announces a Two-Year Time Charter With a Forward Delivery Date for a Kamsarmax Newbuild Vessel at $13,250 Gross Daily Rate

Safe Bulkers, Inc. Announces a Two-Year Time Charter With a Forward Delivery Date for a Kamsarmax Newbuild Vessel at $13,250 Gross Daily Rate

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ATHENS, GREECE, Oct 07, 2011 (MARKETWIRE via COMTEX) -- Safe Bulkers, Inc. (the "Company") /quotes/zigman/512899/quotes/nls/sb SB -2.74% , announced today that it has entered into a new period time charter for a 82,000 dwt, Chinese built, Kamsarmax class vessel, for a duration of 24 to 27 months, with a forward delivery date within the second or the third quarter of 2012, at a gross daily charter rate of $13,250, less 4.75% total commissions. The charter is expected to commence upon delivery from the shipyard.

As of today, the contracted employment of fleet ownership days for the full year 2011, 2012 and 2013 is 94%, 64% and 57% respectively. Contracted employment includes vessels which are scheduled to be delivered to us in the future.

Dr. Loukas Barmparis, President of the Company, said: "The new two-year time charter secures employment for one of our Chinese newbuild Kamsarmax class vessels and expands our charter coverage for the coming two years."

Link to original press release: http://www.marketwatch.com/story/safe-bulkers-inc-announces-a-two-year-time-charter-with-a-forward-delivery-date-for-a-kamsarmax-newbuild-vessel-at-13250-gross-daily-rate-2011-10-07?reflink=MW_news_stmp

That is really cheap.  Most of their ships are rented out for between $20,000 and $24,000 per day.  It was a wise move to lock in this ship for two years because of the coming worldwide recession that will hit the dry bulk shipping rates harder than the present.

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TIP OF THE WEEK - A Second Worldwide Financial Crisis is Coming

A Second Worldwide Financial Crisis is Coming

Jason Brizic

October 7, 2011

The Euro crisis is real and the Euro is doomed.  This will trigger the next global financial crisis and worldwide recession.

<a href=”http://lewrockwell.com/north/north1039.html”>Busted Euro, Busted Dream</a>

The Eurozone is just beginning to implode starting with the PIIGS.  Those governments made welfare promises that they can’t pay for (in Euros).

The PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are running budget deficits above 3% of GDP. This violates EU rules.  But the European bureaucrats are powerless to stop the violators.  You can view this on the following graph. Only Estonia had a balanced budget as of last spring. Germany was slightly above the 3% limit.

http://www.bbc.co.uk/news/business-13366011

Greece will default first.  That is obvious because one year Greek government bonds are yielding over 100%.  Ireland will likely be next and then the rest of the PIIGS will tumble which have much bigger sovereign debts.

Do you want to see how small Greece is in the whole European debt crisis?  Look at <a href:http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html>this</a> from the New York Times back in December 2010.

The northern European banks lent trillions to the PIIGS.  They will need massive bailouts that dwarf the previous bailouts.  The northern European banks bought default insurance from the American banks.  The US banks are exposed to the European soverign debt crisis also.  The yield curve is flattening and we are going into a second recession.  Plan accordingly.  Read this site to sidestep as much of the calamity as possible.

There will be a time to buy high dividend stocks with earning power and strong balance sheets down at the bottom like in March 2009.  But we aren’t there yet.

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Reasons why you should own gold in your investment assets.

Big government statists who believe in Keynesian economics hate gold.  They write articles to persuade you not to buy the metal which has severed as money for most of the past 5,000 years.  Here is an article by Yale/Harvard trained Fareed Zakaria.  Mr. Zakaria is a current contributor to the dying Times magazine.

Precious metals are a crisis hedge.  There really is a crisis that is at the boiling over point.  The government debt crisis brought on by decades of Keynesian deficit spending is happening now.  They will print more money to attempt to stop the crisis money printing caused.  Keynesian central bankers and governments are pouring gas on the fire to put it out.  Mr. Zakaria is trying to convince you that it will put the fire out.

All that's gold doesn't glitter <http://globalpublicsquare.blogs.cnn.com/2011/10/03/why-gold-might-be-a-bad-investment/>

By Fareed Zakaria, CNN

What do Hugo Chavez and Glenn Beck have in common? The socialist/populist president of Venezuela and the right-wing talk show host often have strange ideas - just not the same ones. But it turns out, they are both gold bugs.

Now, many people have been investing in gold. But Hugo Chavez wants to horde it literally, physically. The Venezuelan government controls the world's 15th largest stockpile of gold: about 365 tons. But, like most gold investors, it doesn't really have that gold. At least not physically. More than half of Venezuela's reserves are held overseas in London, New York and Zurich. If you ever visit the New York federal reserve, you can even see it in the underground vaults, neatly labelled as Venezuela's.

You are not investing in gold if you do not take physical ownership of it.  Many people are trading paper promises in gold such as the gold ETF (GLD).  I don’t like Hugo Chavez, but he’d be wise to repatriate the Venezuelan government’s gold to Venezuela.

Mr. Chavez, as you know, doesn't like the West; he doesn't like this predicament. So he's announced he wants his gold. But how do you transport 211 tons of gold across the seas? Well, by spending lots of money. You have to insure against a gold heist, like the one in The Italian Job <http://www.italianjobmovie.com/> . Experts say Mr. Chavez could spend at least 4% of the total value of his gold on insurance, with more on security and transport. Add it all up and you could get about half a billion dollars. That's serious money for any country, let alone one that has negative growth rates as does Venezuela these days.

The Venezuelan government could transport the gold in a ship across the sea.  And they could pay for it with fiat money that their central bank could print to buy insurance against a heist.  Economic growth rates measured by changes in GDP is just another Keynesian aggregated number compiled by salaried bureaucrats.  It is true that the standard of living is going down in Venezuela, but it is due to socialism’s effects.  Keynesians believe that government spending adds to an economy.  In reality, government spending must come from the money that consumers planned on spending themselves or from the investments that individuals would have made themselves.  It doesn’t add to the economy; it just redirects money into unprofitable government programs.

What in the World is Hugo Chavez thinking?

Actually: He's not alone. From the ancient times of Egypt's Tutankhamun to the Gold Rush in the mid-19th century, right through to the modern day, we've always been attracted to gold. Who can ever forget the appropriately named Auric Goldfinger, from the James Bond movie, who said, "This is gold, Mr. Bond. All my life I've admired its color, its brilliance, its divine heaviness."

Mr. Goldfinger forgot to mention its rarity, divisibility, purity, durability, and portability.  These are some of the qualities that make good mediums of exchange (money).

There are many who share Mr. Goldfinger's sentiments around the globe. especially in times of confusion and uncertainty about governments. People worry that governments are keeping interest rates too low, that will cause inflation and could weaken the dollar and other currencies.

There is a very real soverign debt crisis (read government debt crisis) at hand.  It is the result of decades of Keynesian economic policies.  Keynesians believe that government spending is productive especially in a time of recession/depression.  A free market in interest rates would be higher than they are now.  There will be massive price inflation when the commercial banks loan out their $1.7 trillion in excess reserves.  The dollar will continue to decline until the Federal Reserve stiffs the US Treasury at some point in the future.

The answer: Store Gold - something that has always been seen as a solid, substantial hedge against inflation. If everything else collapses, the theory goes, gold will hold its value. For this reason, in the last decade gold prices have risen more than 600%. Is this a rational response to legitimate fears of inflation? Or are we in the middle of a bubble?

Gold is only a crisis hedge (this includes massive price inflation like 20-30% per annum and hyperinflation).  Gold does not hedge against run of the mill FED inflation of 2-3% per annum.  There is a real crisis in the financial system and in government debt service.  There is no bubble in gold until the FED stiffs the US Treasury and causes a 1930-1933 deflation (aka the Great Depression).

There are signs that suggest a bubble. The fact is, global demand for gold in industry and jewelry has actually declined by 18% since 2004. And yet over the same period prices have surged. So it's clear that the market is flooded with speculators who see gold as an investment, not as a usable currency or product.

The decline in demand for jewelry is no surprise.  This is basic economics.  If the price of a good such as jewelry goes up, then the demand for that good goes down (all other things being equal).  The price of gold is being driven up because there is a real increase in demand at the current prices.  Some investors realize that the price will continue to go up as long as the FED keeps creating digital dollars for bailouts.  I’ll save my defense of speculators for another article.  In short, they minimize price swings through their actions.  If you can’t wait, then read Walter Block’s chapter on speculators available for free at http://mises.org/resources/3490/Defending-the-Undefendable .

What's really changed in the last few years is access. It's easier to buy gold over the internet than it is stocks or shares. In places like Abu Dhabi and some European cities, you can buy grams of gold at ATM-style dispensers. All over the world, there's a new Gold Rush. You switch on the TV and commercials warn you that the end of the world is coming and that you need to put your money in gold. Glenn Beck says that if you haven't switched your savings to gold, you're nuts. And Donald Trump is now accepting gold bars instead of wire transfers for luxury condos.

This is not true.  It is not easier to buy gold online; it is slightly harder because you usually need to use a bank wire to buy at good prices.  Buying a gold ETF like GLD is just as easy as buying stocks, but that isn’t buying gold that will be physically delivered to you.  The gold ATMs are so limited in distribution that they are just novelties at this point.  When they start showing up next to Redbox video rentals then maybe I’ll consider gold becoming a bubble.  There is a new gold rush because the crisis is going to be as bad or worse than the Great Depression.  Almost no one owns gold presently despite all the TV commercials.  It represents less than 1% of financial assets.  Donald Trump is wise to accept gold bars as payment.

I recommend that you own 20% - 30% of your net worth in precious metals that you physically posses.  If you have a net worth of $100,000, then that means you should own between $20,000 and $30,000 in precious metals.  I would keep 80% in gold and only 20% in silver.  Silver is much more volatile than gold.  Buy one ounce or tenth ounce gold coins printed by the mint of the country you reside in.  Your precious metals are not a hedge against inflation.  They are a hedge against massive inflation caused by a rapidly expanding money supply.  They are useless in a hyperinflation (which I don’t think will happen), but valuable in the aftermath to capitalize a business or to pay off debts by selling off a few ounces.

Most investment advisors will only advise 5% of your net worth at the maximum because they have no understanding of economics.  That leaves 95% in dollar denominated assets.  This is unwise.

This is bizarre. A lot of it is simply scaremongering. The truth is that for two and half decades, between 1980 and the mid 2000s - gold prices actually declined. Unlike many other commodities which actually have an end use - oil, minerals - gold is just a symbol, and as such its price rises have to do more with psychology and emotion than reason. So, when it falls out of fashion, the price could really collapse. The next time you watch Goldfinger or you hear of the antics of a Hugo Chavez or a Donald Trump, be a little wary.

The price of gold did in fact decline as price inflation rose from 1980 to the mid 2000s.  There was no perceived crisis then.  This is why it is only a crisis hedge.  Gold doesn’t hedge you against non-crisis levels of price inflation.  Gold is a commodity; it has an end use as jewelry, in electronics, and as a crisis hedge.  It is possible that it will serve as money again in the future, but even if it doesn’t it still has value and can be exchanged for other fiat monies (Yen, Dollars, Euro, Pounds, etc.).

The price of gold will go down during a deflationary depression.  When the FED ceases to buy US treasury bonds and (gasp!) sells some of its assets the money supply will fall.  A falling money supply is called deflation.  It hasn’t happened since 1933.  As the money supply shrinks many banks will collapse.  The small and medium sized banks will collapse because the FED won’t be bailing them out.  The biggest banks will probably survive because the FED protects them.  The dollar will strengthen in purchasing power and gold will fall.  Printed currency in your possession is king in a true deflationary depression.  Digital money in your savings, retirement accounts, and checking accounts will be disappearing when your bank dies.  There is no FDIC protect as this point in time (remember the FED stiffed the US treasury which funds the FDIC).  You should always have some currency at home in a safe with your precious metals.

Gold isn't a stock with real earnings. It isn't a bond with interest payments. It isn't oil. It won't help you drive a car; it won't help you light a fire. Yes, you can wear it, but you can't eat it. If doomsday really arrives, a can of baked beans might be worth a lot more than a brick of gold

We are in a bear market.  Many stocks will suffer a loss of real earnings.  Bonds are in a bubble.  Oil will decline in price until the banks begin to increase lending, then it will shoot upward with the massive price inflation.  US dollars won’t help you drive a car; they won’t help you light a fire.  Wait a minute.  US dollars might be useful for lighting a fire during a hyperinflation.  You can’t eat US dollars either.

You should buy storable goods that you will use or consume in the future now while prices are relatively cheap.  Once you have a good supply of storable goods in your basement or storage areas start consuming them and replenishing them in a rotation.  Do this before you buy gold.  Then buy gold and have some currency on hand.  Most people are in such bad financial shape that they probably shouldn’t own any gold because they haven’t taken care of their immediate needs first (such as water, food, and basic consumables).  A typical gold bar is 400 ounces.  The ultrarich might own a few bars, but no one else.  This is hyperbole.  Buy the beans now while their cheap.

Here is some of the Wikipedia entry for Fareed Zakaria who is the author of the article I just refuted.  http://en.wikipedia.org/wiki/Fareed_Zakaria  Yale and Harvard graduates are thoroughly schooled in Keynesian economics and Council on Foreign Relations one-world-government ideologies such as socialism and national socialism.  He is not an advocate of individual freedom and unfettered voluntary exchange.  He was born into the political class that has everything to lose when Keynesian policies fail.  Don’t forget this.

Early life

Zakaria was born in Mumbai (then Bombay), Maharashtra, India, to a Konkani Muslim family.[3] His father, Rafiq Zakaria, was a politician associated with the Indian National Congress and an Islamic scholar. His mother, Fatima Zakaria, was for a time the editor of the Sunday Times of India.

Zakaria attended the Cathedral and John Connon School in Mumbai. He received a Bachelor of Arts from Yale University,[1] where he was president of the Yale Political Union, editor-in-chief of the Yale Political Monthly, a member of the Scroll and Key society, and a member of the Party of the Right. He later earned a Doctor of Philosophy in political science from Harvard University in 1993,[1] where he studied under Samuel P. Huntington and Stanley Hoffmann.

Career

After directing a research project on American foreign policy at Harvard, Zakaria became managing editor of Foreign Affairs magazine in 1992. In October 2000, he was named editor of Newsweek International,[1] and wrote a weekly foreign affairs column. In August 2010 it was announced that he was moving from Newsweek to Time magazine, to serve as a contributing editor and columnist.[4]

He has written on a variety of subjects for the New York Times, the Wall Street Journal, The New Yorker, and as a wine columnist for the web magazine Slate.[5][6]

Zakaria is the author of From Wealth to Power: The Unusual Origins of America's World Role (Princeton, 1998), The Future of Freedom (Norton, 2003), and The Post-American World (2008); he has also co-edited The American Encounter: The United States and the Making of the Modern World (Basic Books).

In 2007, Foreign Policy and Prospect magazines named him one of the 100 leading public intellectuals in the world.[7]

Zakaria was a news analyst with ABC's This Week with George Stephanopoulos (2002–2007); he hosted the weekly TV news show, Foreign Exchange with Fareed Zakaria on PBS (2005–2008); his weekly show, Fareed Zakaria GPS (Global Public Square) premiered on CNN in June 2008.[1] It airs on Sundays at 10:00am and 1:00pm Eastern Daylight Time.

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Don't buy Safe Bulkers yet even though it is below $7.00

Safe Bulkers has been absolutely hammered since April of 2011, but don't buy it yet.  I know it is in value territory right now.  But trust me...it will go lower with the world economy because dry bulk shipping rates are affected by the world economy.  Wait until the technicals show a bottom for this excellent dividend company.
 
You can read all my articles on Safe Bulkers fundamentals by clicking on this link: http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb
 
 
Here is the link to the SB chart if it doesn't appear above: http://stockcharts.com/h-sc/ui?s=SB&p=W&b=5&g=0&id=p02710131286
 
The technicals I'm looking for are the CCI coming out of the red zone, the price lifting off the lower Bollinger Band, and the MACD turning upward.
 
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