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AGNC 2010 annual report and millions of more shares next year.

American Capital Agency Corp. (AGNC) issued a press release today that focuses on the rescheduling of its annual meeting of stockholders.  The press release failed to mention the inclusion of its 2010 annual report available from the link to the proxy materials.  Follow this link to download the annual report:

www.AGNC.com/2011proxymaterials

The annual report can be downloaded in PDF format.  I will read through it and begin blogging on new information that could jeopardize AGNC’s high dividend yield.

Why did AGNC delay the stockholders meeting?  According to them they wanted to give stockholders additional time to consider and vote on the amended proposal.  What is special about the amended proposal?

            “… and to modify the requested increase in the Company's authorized shares of common stock.  The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000. “

AGNC has 128.83 million shares currently outstanding.  It is currently paying a $1.40 quarterly dividend on those shares.  That totals $180.36 million dollars per quarter in dividend payments.  The company must periodically issue new shares of common stocks, to bring in capital, in order to leverage around 8x, to buy the agency securities yielding an average of 3.44% with repurchase agreements costing an average of 1.02%, to keep the difference, and to pay a whopping dividend of $1.40 per share per quarter.

It is a Catch 22 situation.  The trouble is that each additional outstanding share comes with an expectation of a large cash dividend.  The huge 18% dividend yield is the main reason that investors speculators are purchasing shares of AGNC.  The more shares the harder it is to keep the dividend the same or growing. 

Let’s assume for a moment that AGNC issues all the shares it can until it hits the 300 million limit proposed.  Will the company be able to sustain its $1.40 quarterly dividend?  Heck no!  300 million shares times $1.40 per share equals $420 million in dividend payments per quarter or $1.6 billion per year.

AGNC only earned $177 million in net interest income in 2010.  AGNC still wouldn’t have enough income to pay the $1.40 quarterly dividend even if it was able to triple its net interest income in 2011 to $531 million.  Couple this reality with an increasing risk of higher interest rates and AGNC’s current price of $30 per share looks like it has less upside than downside.

Disclosure: I don’t own AGNC; nor do I ever plan to.  It is a house of misallocated cards.

American Capital Agency Corp. Reschedules 2011 Annual Meeting of Stockholders

BETHESDA, Md., May 25, 2011 /PRNewswire/ -- American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that it has rescheduled its 2011 annual meeting of stockholders, originally scheduled for May 31, 2011. The new meeting date and time is Friday, June 10, 2011 at 9 a.m. (ET). The annual meeting will be held at AGNC, located at 2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814.  

The Company also announced that it has supplemented its proxy statement for the 2011 annual meeting to amend the charter amendment proposal to eliminate the proposed increase in the Company's authorized shares of preferred stock and to modify the requested increase in the Company's authorized shares of common stock.  The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000.  The Company rescheduled its annual meeting in order to provide its stockholders with additional time to consider and vote on the amended proposal.

The annual meeting will be held for the purposes set forth below.

1.     To elect the Board of Directors, with each director serving a one-year term and until his successor is elected and qualified;

2.     To approve an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the total authorized number of shares of common stock from 150,000,000 to 300,000,000;

3.     To ratify the selection of Ernst & Young LLP to serve as the Company's independent public accountant for the year ending December 31, 2011; and

4.     To transact such other business as may properly come before the meeting or any adjournment thereof.

The Board of Directors of the Company has recommended a vote "FOR" all of the director nominees and "FOR" proposals 2 and 3 above.

Formal notice of the rescheduled meeting and the supplement to the Company's proxy statement and revised proxy card are being mailed today to the Company's stockholders.  More information on the items to be discussed at the meeting can be found in the Company's proxy statement, which is available at www.AGNC.com/2011proxymaterials.

Stockholders of record at the close of business on April 11, 2011 are entitled to notice of, and to vote at, the 2011 annual meeting and any adjournment of the meeting. If you wish to vote shares held in your name or attend the annual meeting in person, please register in advance by emailing Investor Relations at IR@AGNC.com or by phone at (301) 968-9300. Attendance at the 2011 annual meeting will be limited to persons presenting proof of stock ownership on the record date and picture identification. If you hold shares directly in your name as the stockholder of record, proof of ownership could include a copy of your account statement or a copy of your stock certificate(s). If you hold shares through an intermediary, such as a broker, bank or other nominee, proof of stock ownership could include a proxy from your broker, bank or other nominee or a copy of your brokerage or bank account statement. Additionally, if you intend to vote your shares at the meeting, you must request a "legal proxy" from your broker, bank or other nominee and bring this legal proxy to the meeting.

For further information or questions, please do not hesitate to call the Company's Investor Relations Department at (301) 968-9300 or send an email to IR@AGNC.com.

Original link to the press release: http://www.prnewswire.com/news-releases/american-capital-agency-corp-reschedules-2011-annual-meeting-of-stockholders-122583503.html

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Is Southern Copper heading north or south from $34.74?

It is time to take another look at Southern Copper.  Its stock price has declined from its most recent peak of $48.96 at the beginning of 2011 down to $34.74 today.  That is a decline of about 29%.  Has this copper producer entered value territory yet?  I’m going to perform my quick valuation checks to see what is going on with this mega-copper producer.

Shares outstanding: 850 million (slight buyback or the past five years)

Dividend record

Dividend yield: 6.4% projected

Quarterly dividend: $0.56 ($2.24 annual rate)  This is a two cent cut from the previous quarter.

Dividend payout ratio: 116% of 5 yr. avg. earnings per share (this means that another dividend cut is possible unless earnings improve enough to bring the dividend payout ratio down to 80%.  Earnings would have to improve to $2.80 per share at the current quarterly dividend rate).

Earning power

Last 5 years earnings adjusted for slight changes in capitalization

            EPS     Net inc.           Adj. EPS

2006    $2.31   $2,038 M         $2.40

2007    $2.51   $2,216 M         $2.60

2008    $1.60   $1,407 M         $1.66

2009    $1.09   $929 M            $1.09

2010    $1.83   $1,554 M         $1.83

5 year average earnings per share: $1.92 @ 850 M shares.  SCCO is trading at 18.1 times its 5 year average earnings.  I like value stocks below 12 times earnings.  Above 20 is speculative.

Balance sheet

Book value: $4.58

Price to book value: 7.58 (bad)

Current ratio: 3.25 (over 2 is good; no short term liquidity problems)

Quick ratio: 2.65 (over 1 is good; no short term liquidity problems)

Technicals

The 3 year chart confirms the beating that SCCO has taken lately.  Its technicals show that there is room to fall further.  http://bit.ly/SCCO3yrChart

Conclusion

Wait for the double dip recession to buy Southern Cooper (SCCO) below $23.04.  It would be trading for 12 times its 5 year average earnings per share at that price.  The dividend will likely be cut again and it won’t be a high dividend stock with any sustainability until the market price and the dividend come down.  It traded near $23.00 as recently as May 2010. 

Demand for copper at today’s high prices of will wane once the global double dip recession become apparent to most investors.  Also, copper demand at today’s prices will also decrease when China’s construction bubble pops.

Disclosure: I don’t own SCCO or plan to own it above $23.04 per share.

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Safe Bulkers (SB) 7.82% dividend yield remains safe and on sale at $7.80 per share

Safe Bulkers (SB) remains on sale at $7.80 per share.  The company pays a $0.15 quarterly dividend that is safe.  The dividend yield for this high dividend stock is 7.82%.  The company has a five year average earning power of $1.50 per share.  And its balance sheet is good, but it could be improved upon.  I think it will improve once a few of its new-build ships begin operating over the next year.

The fundamentals are solid and have not changed.  Follow this link to read many recent articles on Safe Bulkers fundamentals:

http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb

The technicals look good for market timing: http://bit.ly/3rySBchart

·         The continuous commodity indicator (CCI) is in negative territory.  The CCI tends to bottom at stock bottoms.

·         The stock price is barely below the 50 week moving average.  I like buying when the 50 week is below the 200 week moving average, but Safe Bulkers hasn’t been around for 200 weeks yet. 

·         The stock price is also sliding down the lower Bollinger Band.  Stock price bottoms tend to happen when the stock price jumps off the bottom Bollinger Band. 

·         I use the moving average convergence divergence indicator as a confirming indicator.  The MACD is a momentum oscillator based on the difference between two exponential moving averages.  See http://bit.ly/ChartSchool for a through explanation on each of these technical analysis terms.

You have a good reason to be concerned if you are only going to make a onetime purchase of SB.  This stock will go down if the S&P 500 goes down in reaction to a global double dip recession.  Dry bulk shipping moves the commodities that are necessary in a booming global economy.  A renewal of the global economic bust will drop dry bulk shipping stocks even though SB has long term contracts in place to whether the economic storm.  That will make it an extreme bargain with a huge dividend yield like in 2008 when the stock went below $3.00 per share temporarily.

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America's Student Loan Racket: Soaring Default Rates

Don't go into debt to fund a college degree.  It is a trap.  You can earn a college degree for under $15,000.  Click here for details: http://www.garynorth.com/public/department89.cfm 

America's Student Loan Racket: Soaring Default Rates

by Stephen Lendman
The People's Voice

Recently by Stephen Lendman: America's Total Surveillance Society

 

   

An earlier article discussed 'Permanent Debt Bondage from America's Student Loan Racket."

It explained government/corporate complicity to rip off students for profit, a racket continuing under Obama. His July 2010 Student Aid and Fiscal Responsibility Act perpetuated the scam. It enriches providers, entrapping millions of students permanently in debt, because rising tuition and fee amounts plus interest, service charges, and late payment or collection agency penalties are too onerous to repay.

It's part of the grand scheme, of course, to transfer maximum public wealth to America's super-rich already with too much. Ongoing for over three decades, it accelerated under Obama, a corrupted Wall Street/war profiteer tool, destroying America for power and profit.

Millions of Students Permanently Entrapped in Debt

Many students, whether or not they graduate, have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it's a $500,000 obligation, and if default, much more because debts aren't forgiven. As a result, once entrapped, escape is impossible. Bondage is permanent, and future lives and careers are impaired or ruined.

Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection ones, and state usury laws when applied to federally guaranteed student loans. As a result, lenders may freely garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment even harder or impossible.

Moreover, under a congressionally established default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest due. A borrower's only recourse is to request an onerous and expensive "loan rehabilitation" procedure, requiring extended payments (not applied to principle or interest), then arrange a new loan for which additional fees are incurred.

As a result, for many, permanent debt bondage is assured. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.

At issue is a conspiratorial alliance of lenders, guarantors, servicers, and collection companies enriching themselves hugely at borrowers' expense, thriving from extortionist fees and related schemes. It's a congressionally sanctioned racket, scamming millions of indebted victims.

Moreover, lenders thrive on bad debts, deriving income from inflated service charges and collection fees. They're more than ever today as default rates soar, lifetime rates now nearly one-third of undergraduate loans, higher than for subprime mortgages. In fact, they're higher than for any other lending instrument and rising.

Soaring Defaults During Hard Times

Since America's economic crisis began in late 2007, an April 21, 2009 Wall Street Journal (WSJ) Anne Marie Chaker article highlighted the burden on students headlined, "Student Loans: Default Rates are Soaring," saying:

The combination of economic weakness, rising tuitions and poor job prospects caused defaults on student loans to skyrocket. According to Department of Education numbers for those federally guaranteed, estimated FY 2007 default rates reached 6.9%, up from 4.6% two years earlier.

Conditions are now far worse according to a February 4, 2011 Mary Pilon and Melissa Korn WSJ article headlined, "Student-Loan Default Rates Worsen," saying:

They "rose to 13.8% from 11.8% for students beginning repayment in (FY) 2008 compared with those starting a year earlier," according to new Department of Education data.

They measure defaults within the first three years of repayment. Over their lifetime, however, they approach two and a half times that level, perhaps heading for 50% if economic conditions keep deteriorating while tuition and fee rates rise.

Students at for-profit schools fare worst at 25%, but sharp tuition increases at public and private nonprofit universities place greater burdens on their graduates, assuring rising defaults, especially over their lifetime.

Moreover, rising levels may cause many colleges to become ineligible for government-backed Pell Grants and other student loans. To qualify, they formerly had to show less than 25% of students defaulting within a two year window. If they breached that threshold for three consecutive years, or hit 40% in a single year, they could lose out altogether.

Now, under the 2008 Higher Education Opportunity Act increasing the default window to three years, the ineligibility threshold rose to 30%, penalties not beginning until 2014.

On March 15, New York Times writer Tamar Lewin headlined, "Loan Study on Students Goes Beyond Default Rates," saying:

For every student defaulting, "at least two more fall behind in payments," according to a new study. Conducted for the Institute for Higher Education Policy by Alisa Cunningham and Gregory Kienzl.

It explains that around 40% of borrowers were delinquent within a five year repayment window. Almost one-fourth of them postponed payments to avoid delinquency. However, doing so made their interest and overall debt burden more onerous because escape is impossible.

Data from five of the country's largest student loan agencies showed only 37% of borrowers who began repayments in 2005 did so on time, a number now decreasing during hard times.

On April 11, Lewin headlined, "Burden of College Loans on Graduates Grows," saying:

"Two-thirds of bachelor's degree recipients graduated with debt in 2008, compared with less than half in 1993." However, rising debt burdens contribute to soaring default rates, especially for private for-profit universities. Moreover, given Pell Grant cuts and rising tuitions, students will be more than ever indebted and strapped to repay during hard times because Congress rigged the system against them.

As a result, education policy experts expect serious implications for future graduates. According to Lauren Asher, Institute for College Access and Success president:

"If you have a lot of people finishing or leaving school (entrapped in) debt, their choices may be very different than the generation before them. Things like buying a home, starting a family, starting a business, saving for their own kids' education may not be an option if they're trying to repay student debt."

Moreover, "(t)here's much more awareness about student borrowing than there was 10 years ago. People either are in debt or know someone in debt."

Many of them have their own horror stories about how predatory lenders, servicers, guarantors, and collection companies rip them off under an escape-proof system.

The entire scheme amounts to legalized grand theft, the equivalent of what Wall Street banks do to investors with impunity.

According to Deanne Loonin, a National Consumer Law Center attorney:

"About two-thirds of the people I see attended for-profit (universities). Most did not complete their program, and no one I have worked with has ever gotten a job in the field they were supposedly trained for. For them, the negative (debt default) mark on their credit report is the No. 1 barrier to moving ahead in their lives. It doesn't just delay their ability to buy a house, it gets in the way of their employment prospects, finding an apartment, almost anything they try to do."

A Final Comment

America today is characterized by a combination of rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair, mocking the notion of a fair and equitable society.

Not at all under a corrupted political duopoly, sucking public wealth to America's super-rich, spurning popular needs, waging permanent war, and heading the nation for tyranny and ruin.

If that's not just cause to resist, what is? If not now, when? If not us, who? If that future doesn't arouse public anger, what will?

Reprinted with permission from The People's Voice.

May 21, 2011

Stephen Lendman [send him mail] lives in Chicago. Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening. Visit his blog.

Copyright © 2011 The People's Voice

TIP OF THE WEEK - How to Buy Foreign Currencies in the US; One Way to Guard Against a Dollar Decline ((tip of the week, foreign currencies, Everbank, Chuck Butler))

How to Buy Foreign Currencies in the US to Guard Against a Dollar Decline

Jason Brizic

May 20, 2011

The dollar is dying as the world’s reserve currency.  The Federal Reserve is debasing the dollar like never before.  You earn your money in dollars, you buy goods in dollars, you save in dollars, and you invest in dollar denominated assets.  This would be no problem if there was sound money in the U.S., but we have a fiat money system that is spiraling out of control.

You should have some of your liquid savings in investments denominated in something other than dollars.  But you also want FDIC insurance.  How can you do this?

I have found one U.S. bank so far that allows its customers to invest in foreign currencies without all the complexity of the Foreign Exchange market (FOREX).  That company is Everbank.  I don’t have an account with them yet, but I’m looking into it.  Here is what I found:

https://www.everbank.com/personal/foreign-currencies.aspx

P.S. One of the Everbank executives writes a blog called the Daily Pfenig.  Its good.  I suggest you check him out.  His name is Chuck Butler.  I’ve read him for years. http://dailyreckoning.com/author/cbutler-2/

For more tips, go here:

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

Video - Boyden Recommends Safe Bulkers (SB), Diana Shipping, Navios

You know I liked Safe Bulkers (SB) above $8.00 per share.  I really like it lately because the market participants are knocking the price down for no apparent reason.  There is a sale going on for the high dividend stock Safe Bulkers.  SB closed today at $7.70.  This makes no sense.

Yes, the Baltic dry index is meandering lower due to tons of new capsize ships entering service.  But all of Safe Bulkers capsizes are on long term contracts.  Only two of their 16 ships are the capsizes.  And they only have two more on the way out of about 11 new ships.  Even their unfinished capsizes are on contract for much higher prices than the low numbers being talked about in the video.

The dividend is safe and yielding 7.8% and climbing as the stock price goes 1% lower today.  The company has five year average earning power of $1.50 per share (easily enough to cover the $0.15 quarterly dividend).  It also has a good balance sheet.  So, I don’t believe me.  Well watch this video to hear it from someone else who is an analyst for some Wall Street firm.

Boyden Recommends Safe Bulkers, Diana Shipping, Navios

May 17 (Bloomberg) -- Natasha Boyden, an analyst with Cantor Fitzgerald LP, talks about her investment strategy for shipping industry stocks and her recommendations of Safe Bulkers Inc., Diana Shipping Inc. and Navios Maritime Acquisition Corp. shares. Boyden speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg) (/Bloomberg)

Here is the video link in case the embedded video code doesn’t work: http://www.washingtonpost.com/business/boyden-recommends-safe-bulkers-diana-shipping-navios/2011/05/17/AF7Z925G_video.html#

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Ron Paul: "Sell the Gold in Ft. Knox"

There are two types of gold standards: a government gold standard and a private gold coin standard.  The private gold coin standard is consistent with a truly free market.  The government gold standard (1933-1971) is statist and should be rejected in favor of a private gold coin standard.

I recommend that you possess 20-30% of you non-house net worth in physical gold coins.  This article will help you greatly understand both types of gold standards.  This topic will not go away until the US government goes broke.  The US Federal Reserve is inflating like Zimbabwe several years before their hyperinflation.

For example, the people calling themselves the government of Zimbabwe destroyed the Zimbabwe dollar through hyperinflation culminating in 2008.  Now the failed chief central bank president, Dr. Gedeon Gono, is talking about a return to “the gold standard”.  The question is which gold standard?  Keep that in mind as you read the excellent article below.

Zimbabwe's central bank president, Dr Gideon Gono, is calling for Zimbabwe to consider going on the gold standard.

Zimbabwe best known for their inflationary ways (their inflation rate reached 489 billion percent in September 2008) has possibly recognized that the former leader of the bankster world the arrested Dominique Strauss-Kahn is a bankster scam artist and that gold is the only real hard money.

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only be stable but internationally acceptable,” he said in an interview with state media, reports New Zimbabwe.

Click here for the rest of the article: http://www.lewrockwell.com/wenzel/wenzel106.html

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* * * * * * *

Ron Paul: "Sell the Gold in Ft. Knox"

Gary North
May 19, 2011

Ask a gold bug if he thinks that Franklin Roosevelt did the right thing in 1933 when he unilaterally confiscated the gold coins of all Americans. He will tell you "no." Why not? "Because it was a violation of property rights. The Federal government had no legal authority to do this."

But the Supreme Court authorized it, 5 to 4. The gold bug will tell you that the Supreme Court cannot be trusted.

Fast forward almost 70 years. Ron Paul announces at the Heritage Foundation that the government should sell its gold to reduce the national debt.

http://www.nysun.com/national/selling-gold-at-fort-knox-emerges-as-next-big/87350

No one comes to his defense.

Understandably, the Treasury Department got one of its staffers to write a critique. The government should sell no assets, she insists. Congress must raise the debt ceiling. There are not enough assets to sell. She ridiculed the suggestion of a balanced budget through asset sales. With a deficit of $125 billion a month, she said, a fire sale would do no good.

Then, amazingly, she admitted that gold is central to the perception if the U.S. government as solvent.

A "fire sale" of the Nation's gold to meet payment obligations would undercut confidence in the United States both here and abroad, and would be extremely destabilizing to the world financial system.

Treasury Secretaries from both parties have made it clear that they would not sell gold in order to buy time in a debt limit impasse. As then-Treasury Secretary James A. Baker said: "President [Reagan] and I are not prepared to take that step because it would undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system, and because the Congress clearly has the power to prevent a default by assuming its responsibility with respect to the debt limit." When President Reagan was asked whether he would consider selling gold, he told his Budget Director, James Miller, "absolutely not." Similarly, Treasury Secretary Robert E. Rubin said, "We will not sell the nation's gold supply."

In short, gold is not a barbarous relic. Gold in the vault at Fort Knox and in the Federal Reserve Bank of New York (a private corporation) is basic to the world's confidence.

But what about gold in the hands of Americans? She did not say. The Treasury has had contempt for that idea ever since 1933.

That a salaried government bureaucrat would oppose the sale is understandable. But equally incensed are gold bugs. Only one came to his defense: the #1 scholar of the American gold standard, Dr. Edwin Vieira, author of Pieces of Eight, a 1600-page history of the gold standard in America. "Redeemable currency is an oxymoron." The government has no plans to restore a gold standard of any kind. "They don't need the gold. They've just been sitting on it since Roosevelt stole it."

Everyone else was critical of Paul's suggestion to restore gold to the private sector.

What's going on here? If it was immoral and illegal for the government to confiscate the gold at $20 an ounce in 1933, why is it a bad idea for the government to sell back the gold to the public at a market price today?

We see once again that people who say they believe that gold is the basis of freedom do not believe it. They believe in the United States government. They believe that the government has the right to hang onto its stolen gold. Why? Because the government will someday establish a gold standard. The gold belongs to the government.

But what is a gold standard? It is a system in which the government buys and sells gold at a foxed price. We have not had that system since 1933. The government did make the promise to foreign governments and central banks, but Nixon unilaterally broke the promise on August 15, 1971.

The gold bugs have now converted to Franklin Roosevelt's idea of a gold standard: a system in which the government has the right to steal property at one price, hike the price later, and sit on the wealth. The gold bugs honestly trust the Federal government to restore a gold standard someday. There has not been one since since 1933 that any government on earth will do this, but somehow, the gold bugs believe, it will do it in the future.

Fine. If the government sold all of its gold today, this would deplete the Federal Reserve of part of its monetary base. The public would have the gold. The FED could buy assets to replace the gold. That would restore the monetary base. The FED would have worthless IOUs, and the public would have the gold.

My preference would be for the gold to be sold as tenth-ounce American eagles. Sell it to American citizens, not foreign central banks. Get Americans used to holding small gold coins. The government stole the gold from Americans. It should sell it back to Americans.

But gold bugs see what is at stake. The price of gold would fall. They bought gold as an investment. They worry that they would lose money if the stolen gold were sold. Better to let the Federal government hang onto stolen goods than to let the public get its gold back.

They do not believe in the free market. They believe in a rigged market, one in which the government gets the right to hold onto stolen gold forever, or what is the equivalent of forever: the restoration of a gold standard.

But what kind of gold standard? The kind that existed under Bretton Woods system (1946-71)? One in which there is no legal right for common people to buy gold at a fixed price? That transferred power to Richard Nixon. How good a gold standard was that?

What kind of gold standard is a government-guaranteed gold standard? "Turn over your gold to us. You can get it back at any time." That was what banks around the world promised until August 1914. Then the central banks confiscated the gold held on deposit at commercial banks. The gold was never returned.

A government-guaranteed gold standard is not a gold standard. It is a government promise standard. It will be broken whenever politicians deem it convenient.

There are two kinds of gold standards. One is a government-guaranteed gold standard, which is preliminary to gold confiscation. The other is a gold coin standard. The difference is clear: the first is statist; the second is free market. As I wrote in 2003:

The State's gold standard is a preliminary to eventual confiscation or debasement. The State's promise of redemption on demand should not be trusted.

A gold coin standard by profit-seeking storage organizations can be trusted with less risk, but not if the storage is offered for free. There are no free lunches. Someone will eventually pay for free services. When it comes to fractional reserve banking, that someone is always the late-coming depositors.

This is why any call by conservatives for the State to adopt a gold standard is futile. No one will listen. Even if voters understood the case for a limited State, they would not be able to limit the State by a State-run gold standard. A State-run monetary system, with the exception only of Byzantium, becomes a debased standard.

This is why the free market is the only reliable source for the re-establishment of a gold standard. Honest money begins with these steps: (1) the revocation of legal tender laws that require people to accept the State's money; (2) the enforcement of contracts; (3) laws against fraud, which fractional reserve banking is. The free market can do the rest.

http://www.lewrockwell.com/north/north201.html

Ron Paul is correct. The government should sell the gold. I would add only this: the form of the gold should be in the form of American eagles, and sold only to Americans -- heirs of the victims of Roosevelt's confiscation. I want Americans to get used to seeing and owning gold coins again.

Most FED officials prefer raising interest rates prior to selling their MBS. How would this affect AGNC?

Of course most Federal Reserve officials would prefer to raise interest rates rather than sell toxic mortgage backed securities.  Nobody in their right mind would pay full face value for those toxic MBS.  The Fed knows this and it is already suffering a public relations crisis.  It doesn’t want the public to know how ineffectual their actions have been since late 2008.

They will also find that raising the Fed Funds Rate will be pushing on a string.  The commercial bankers have over $1.3 trillion in excess reserves in their digital vaults.  They are not loaning money to each other overnight at the Fed Funds Rate to meet reserve requirements (duh! Because they have $1.3 trillion in excess RESERVES.)  The Federal Reserve could raise this rate to 20% and nothing would happen.  Actually something would happen.  People would notice that the Fed is not in control of all interest rates like they were taught.

If the Federal Reserve does sell toxic MBS into the market, then that is very bad for high dividend stocks like American Capital Agency Corp. (AGNC) and other mortgage REITs.  There would be an increased supply of MBS for sale and no new demand at the old prices.  Prices of MBS would go down.  The asset value of AGNC’s MBS portfolio would go down.  If the Fed flooded the market with enough MBS, then it is even possible that AGNC would have to sell some agency MBS to satisfy margin calls for its repurchase agreements.  Leverage is a two way street.

The interest rates that the Fed doesn’t control are going to rise and that will hurt AGNC’s net income derived from the spread of various interest rates.  AGNC will lose money if interest rate yield curves invert (that would be a signal of a double dip recession).  Enjoy the high dividend yields while they last because lower future asset values and rising interest rates are going to torpedo AGNC’s investment prospects.

Disclosure: I don’t own AGNC and I don’t plan on owning it ever.

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(Reuters) - Most Federal Reserve officials prefer to raise benchmark interest rates before selling assets when the time comes to tighten policy, minutes of their April meeting showed on Wednesday.

During an extensive discussion of how the central bank might pull back its massive support for the world's largest economy, officials agreed they would eventual shrink the Fed's much expanded portfolio over the medium term, and that getting rid of mortgage-related debt would be a priority.

"A majority of participants preferred that sales of agency securities come after the first increase in the (Fed's) target for short-term interest rates," the Fed said.

"And many of those participants also expressed a preference that the sales proceed relatively gradually, returning (Fed holdings) to all Treasury securities over perhaps five years," the minutes said.

Discussion of the removal of monetary stimulus should not be seen as an indication the Fed is ready to start down that road any time soon, policy makers said.

(Reporting by Mark Felsenthal; Editing by Neil Stempleman)

Safe Bulkers (SB) goes ex-dividend tomorrow yielding 7.2%

NEW YORK (TheStreet) -- The ex-dividend date for Safe Bulkers (NYSE:SB) is tomorrow, May 18, 2011. Owners of shares as of market close today will be eligible for a dividend of 15 cents per share. At a price of $8.09 as of 9:32 a.m. ET, the dividend yield is 7.2%.

The average volume for Safe Bulkers has been 251,600 shares per day over the past 30 days. Safe Bulkers has a market cap of $586.9 million and is part of the services sector and transportation industry. Shares are down 6.5% year to date as of the close of trading on Monday.

Safe Bulkers, Inc. provides marine drybulk transportation services worldwide. The company transports various bulk cargoes, such as coal, grain, and iron ore. The company has a P/E ratio of 4.8, below the average transportation industry P/E ratio of 5.2 and below the S&P 500 P/E ratio of 17.7.

Original link: http://www.thestreet.com/story/11121943/1/safe-bulkers-stock-to-go-ex-dividend-tomorrow-sb.html

Disclosure: I don’t own Safe Bulkers now, but I intend to in the future months.

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AGNC hires two investment executives from the failed Freddie Mac and Bear Stearns.

The executives at American Capital Agency Corp. know that interest rates are going to skyrocket in the not so distant future.  So they have hired some ex-Freddie Mac executives to help them game the system until it can no longer be gamed.  There is nothing wrong with that.  Caveat emptor "buyer beware".  I would not be proud to hire people at the failed Freddie Mac or Bear, Stearns & Co.  I wish them success, but I know that AGNC and its high dividend stock buddies in the mortgage REIT sector are a house of leveraged cards that will crumble at the beginnings of an inverted interest rate curve.
 
Why not hire some guys from Enron's risk management department?  How could they do any worse than Freddie Mac and Bear Stearns.  Hiring collosal risk management failures is just plain stupid.  I would avoid AGNC just for their hiring practices.
 
Here are the links to the wikipedia entries for Freddie Mac and Bear Stearns if you can stomach the financial insanity of these dead corporations:
 
 
BETHESDA, Md., May 16, 2011 /PRNewswire/ -- American Capital Agency Management, LLC, the external manager of American Capital Agency Corp. (Nasdaq: AGNC), announced today that Peter J. Federico and M. Song Jo are joining the company.
 
Mr. Federico will join as Senior Vice President and Chief Risk Officer and will be responsible for overseeing all risk management activities relating to AGNC.  Mr. Federico was previously Executive Vice President and Treasurer of Freddie Mac, primarily responsible for managing that company's investment activities for its retained portfolio and developing, implementing and managing risk mitigation strategies.  He was also responsible for managing Freddie Mac's $1.2 trillion interest rate derivative portfolio and short and long-term debt issuance programs.  Mr. Federico previously served in several other capacities at Freddie Mac, including Senior Vice President, Asset & Liability Management.  Mr. Federico joined Freddie Mac in 1988.
 
Mr. Jo joined American Capital Agency Management as Vice President, Mortgage Structuring.  He previously served as Vice President, Mortgage Structuring, Investment & Capital Markets at Freddie Mac, where he was primarily responsible for managing mortgage structuring activities, including creating, managing and trading structured activities to enhance that entity's risk, return and liquidity profile.  Mr. Jo served Freddie Mac in various other capacities from 1997 to 2010.  He previously worked at Alex. Brown & Sons and Bear, Stearns & Co. Inc.
 
"We are excited about expanding our investment team with seasoned professionals," commented Gary Kain, President, American Capital Agency Management, LLC.  "Peter and Song both have extensive experience in investing, trading and managing risk associated with mortgage-backed securities.  Prior to joining us, Peter spent most of his 20 year career involved in the management of one of the largest interest rate derivative portfolios in the world.  We believe that his extensive experience in asset/liability management will further our efforts to generate attractive risk adjusted returns for American Capital Agency Corp. over a wide range of economic environments and interest rate scenarios," he added.
 
"In addition, Song's experience analyzing and executing Agency REMIC transactions at Freddie Mac will significantly enhance our ability to use mortgage structuring to supplement American Capital Agency Corp.'s returns and develop alternative funding strategies," Mr. Kain continued.  "We continue to build the strongest possible investment team with the necessary skills and industry experience to help us enable American Capital Agency Corp. to capitalize on the wealth of opportunities within the agency mortgage market, while appropriately managing risk."
 
 
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