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Post-Furman Sunday Thoughts

Sep 15, 2012; Clemson, SC, USA; Clemson Tigers cheerleaders during the third quarter of the game against the Furman Tigers at Memorial Stadium. Tigers won 41-7. Mandatory Credit: Joshua S. Kelly-US PRESSWIRE
Sep 15, 2012; Clemson, SC, USA; Clemson Tigers cheerleaders during the third quarter of the game against the Furman Tigers at Memorial Stadium. Tigers won 41-7. Mandatory Credit: Joshua S. Kelly-US PRESSWIRE

Well, we learned relatively little yesterday. If all goes well, though, you’ll see FigureFour and Mrs. FigureFour down in Tallahassee. If things don’t work out properly, though, you’ll have to endure my commentary via gamethread. Either way is fine with me. I’ve been to FSU and that place is a circus…probably the only "must see" venue in the ACC (what, did you think I would tell you that a trip to Winston-Salem would change your life?—unless, by life changing, you mean you want to jump from a bridge). Without getting into the weeds, here is how we performed against Furman…Offense = Good, Defense = Complete Shit. You don’t win big games like that. We are working on a lot of content leading up to FSU, so look forward to that this week and let me save my thoughts on this team and the battle for Atlantic supremacy until articles this week.

I will say that, following their first three games, FSU looks as advertised—the real deal. If Clemson is to win this weekend we will have to play an excellent football game. I fear, because of what I’ve seen out of our defense to date, that for Clemson to beat FSU this thing will have to turn into a shootout. The Seminoles are very good and, well, Clemson’s offense is very good. Hopefully the offense can carry this team while the defense tries to come around.

Speaking of South Carolina, I screwed up last night and somehow ended up on the Scar Radio Network (thanks to marrying a Cockfan). You know my complaints…I like Todd Ellis but cannot stand Tommy Suggs. They did screw up several years ago…should have kept Charley Mac and ditched Suggs. I guess it could be worse (or about as bad)—Will Merrit and the host of yahoos Clemson puts on the radio aren’t much better. Damnit, give me Mike Eppley and Rodney. Phillips will never be replaced but Rodney Williams and Mike Eppley were jam up.

Notre Dame to the ACC. This was Swofford’s last hope and it seems he’s pulled it off well, especially screwing schools like Clemson and FSU with a $50 million buyout. I am excited about playing Notre Dame again though. You all will probably recall that the Irish have refused to play Clemson after we whipped their ass on senior day in ’79. If Notre Dame eventually becomes a football member of the ACC, then I will consider this a success. For now, this gives Swoffy a mulligan. He was completely inept negotiating the current television deal but the addition of Notre Dame gives him and the ACC another chance to negotiate for more cheddar. We can only hope that the new deal (A) leaves Raycom out in the cold and (B) banishes the Bachelor and David Pollack from commentating league games. Jesse Palmer is unbearable by himself but put Pollack with him and I want to swan dive from my roof. I understand Pollack’s motor is always running…just don’t have it running along with the Bachelor. I will mute the Wake Forest game when these two yahoos are in the booth.

I was a little bummed out that Auburn was able to pull out the "W." Gene Chizik is what we all thought he was half a decade ago when he arrived at AU—a good defensive coordinator but a man that was sub-.500 at Iowa State. Had they not cheated—allegedly—to win the whole thing Chizik would be fired already. I hope everyone they play (sans Georgia) beats the hell out of them.

I was excited to see Southern Cal go ahead and lose. Now I don’t have to hear all the crap out of the media about Heisman's and how USC is the only team that can beat Alabama. Let’s be honest, nobody is gonna beat Bama this year. The Tide is just that freaking good.

As you guessed, the wife and I disagree on pro football teams as well. Today, her and whodatholly’s Saints get after the Panthers. Normally, I pull against the Aints but I just cannot stand the Panthers. I hope Cam Newton and the Panthers lose every game they play this season. Then, tomorrow, you get to see Matty Ice and the Falcons jump on Peyton Manning’s ass. In all seriousness, the MNF game could quickly turn into a shootout.

Next week is the season finale for the PGA guys. East Lake is the scene for the Tour Championship and it should be a great tournament. Fortunately, we are all in luck because this is a Ryder Cup year. This one is at Medinah and hopefully the Midwest will be good to the boys from the good ole USA. Needless to say, there will be a lot of channel changing next week between the football, racing, and golf’s national pride. The Race for the Chase begins today. Like I said last week, I don’t particularly like the Chase and don’t fully understand how they shake up the standings one week in. Earnhardt goes from near the top to 7th based on win total (I think). What a crock of shit. Why even keep score if you are just going to throw away consistency and performance for the first 2/3 of the schedule when the season finally matters? Anyhow, Little E changed his engine and will start at the tail of the field in Chicago today. That, and apparently Jeff Gordon is growing a mustache. I will refrain from Gordon jokes but that doesn’t mean I expect you to do the same.

Onto what I really want to discuss…QE3. Well, I won’t talk too much about QE3 but more about the stocks I own and how I think I should play this move by the Fed. To be up front, I own a hand full of mutual funds (and have for years, so I honestly cannot tell you the subcomponents of these funds) along with GE, MO, SLW, T, and AGNC. Last week, I got a huge pop out of silver streamer SLW. That thing is up 30+ percent since I bought it in February and is flat out killing it coming off a $25-$26 low back in July. You cannot deny that printing money does a couple things. First and foremost it appears to give Bernanke a chubby. Next it inflates the value of real assets. High among those real assets are commodities like gold, silver, and oil. Don’t limit yourself, however, because QE3 weakens the dollar. A cheap dollar is food (in the short term) for domestic companies who do a lot of business outside of the US. To be blunt, it artificially inflates balance sheets through currency manipulation. The why and hows are important and be sure you understand them because there is a lot of money to be made off of QE3 and, if you are not careful, not making money here will bury you when/if the real economy (not Wall Street but Main Street) gains traction and inflationary pressure (in addition to food and fuel) impacts each and every one of us.

On to Bernanke. I will go ahead and tell you that I believe Fed policy will be detrimental to our country’s future. Further, I cannot wrap my head around the fact that the most influential man in America (chairman of the Fed) is appointed, not elected. However, when the shit hits the fan, do not point your finger at Ben Bernanke or Greenspan. Bernanke (right or wrong) has been charged (appropriately or not) with revitalizing the economy. This is a reality and a byproduct of our elected officials’ inability to set a path forward. That being said, he should have run out of bullets years ago when the Fed dropped effective rates to 0%. However, because our elected officials cannot pass a budget nevermind craft a financial path forward, the Fed has become the domestic financial policy maker by default. Congress cannot make a decision and has effectively passed their responsibilities on to the Federal Reserve. And, please, do not turn this thread into a political argument. I know where I stand on these items but both the Democrats and Republicans are to blame. Bernanke’s loose monetary actions are embraced by the current administration but do not forget that the Fed Chief was appointed by the previous president. I know how I would like to move forward but will not fire off those items for fear of the shitstorm that would ensue within this thread.

Here is where the shots should be fired—my portfolio. I’ll explain my bets and you guys try and shoot holes in my logic and, hopefully, we’ll all be knowledgeable and I can make some sweet moolah. BTW, I am really shakey on market conditions now. I swore I’d be out of the market (sans SLW) prior to October and I may realize gains then wait until February or so to get back into the market. One thing you will realize is that I only invest in things that I understand and can explain briefly to anyone I encounter. The first shot should be fired at my cash holdings. After all the items I just described, one should realize that, with the weakening dollar, you need to be invested in real assets. Real assets (I am too scared of real estate right now to dabble there outside of investing in a company that trades the paper) are the best way to hedge against a weakening dollar and/or inflationary pressure. I saw a commercial the other day that sums it up well…If you had the choice of $1000 in cash or gold and you couldn’t touch it for five years, what would you rather have? I’ll take the real asset because loose monetary policy and issuing debt only increases the value of a real asset against the dollar.

SLW: Silver streaming company that has very little overhead. SLW basically fronts mining firmscash in exchange for fixed priced commodities (mainly silver). Hence, they buy silver cheap and have a stable cost to do business (I want to say they pay less than $5 an ounce for silver) so the size of their profit si largely depended on commodity market conditions—expensive silver makes them a boatload of cash. With little overhead and fixed pricing, this is essentially a silver ETF that pays a dividend. What it all boils down to is this is a bet on rising silver prices based on economic uncertainty and loose domestic monetary policies (I would make the same bet on gold but I had a tough time finding a company that could get me the exposure to a commodity that SLW does without taking physical ownership of the goodie and with such a simple business model).

GE: This was an easy buy for me three years ago. General Electric was getting kicked around unjustly due to market conditions and concerns over their finance arm. Their business model was inappropriately weighted towards GE Finance instead of their manufacturing arm. This decision made Jack Welch and crew a ton of money in the late ‘90’s but put GE in a compromising position. The buy in ’09 was based on an assessment that the market beat down a good company and inappropriately devalued this stock. Since, GE spent time unwinding their GE Finance woes and has moved back towards core businesses that made them money prior to GE turning into a bank. I will say that I have doubled my money and likely will get out of this position by month’s end. If the current president is reelected, my position will likely return. Either way, I plan to do a complete reassessment of Jeff Immelt’s company at the turn of the year to try and assess potential gain.

MO: Altria, what a company. They are a little debt heavy but reward stock holders with a sweet 5% dividend. With the government demonizing cigarettes and such, it is amazing that companies like MO and LO are still in business. I have owned MO for over two years and love the return and dividend. I have been saying for some time that I need to move out of MO and into Phillip Morris for the same reasons PM was spun off…to mitigate domestic lawsuits and realize profits from other parts of the world where smoking is not a taboo act. Don’t get me wrong, I don’t condone smoking but am realistic enough to know to bet on a company who’s product is crucified by all, their consumer market is shrinking (partly due to self-advertisement against their product) yet has the pricing power to give them an insane ROI considering the circumstances. As I have said, though, I may reevaluate my position and take the lower yield for security outside the US tobacco market.

T: This buy was simple. I wanted exposure to the telecommunications sector and made a decision between AT&T and VZ. Both had very attractive yields (roughly 5% annually). I have a cell contract with VZ and get internet from T. The initial decision was based on my views of where I thought the data was going. ATT recently got popped with the Apple release of the iPhone release. I understand the stock taking a hit because the carriers must subsidize $400-$500 per phone. In the short term, this is no good but these folks but they kill it long term with their phone plans. Allegedly, ATT won’t subsidize the new iPhone if you have an unlimited plan (you must pay the $600 or so retail price) but will knock that price down to $200 if you adjust your plan. Clever move to get people off the unlimited plan and into a plan that makes customers pay for eating up bandwidth. Because of the safe return, I’ll likely be long either T or VZ for some time. If you want more risk in this sector, look at Sprint. S has had quite the run up over the mast couple months but definitely does not provide the security that VZ/T provides. I wouldn’t touch S right now for the simple fact that the price now has doubled from its 52 week low.

AGNC: When I told my buddies I was buying a REIT last year I almost got laughed out of the room. Since, I have been laughing all the way to the bank. The initial dividend was approx. 20% annually and that has been adjusted to 15%. Too good to be true, you say…and I have enjoyed gain via stock price appreciation. Here is the core business. First off, this is a REIT. REITS do not pay taxes and can leverage themselves more liberally than other businesses. The trick is that REITS must return a ridiculously large amount of their profits to their shareholders through dividends and, because of their unique tax position, all dividends are taxed to the individual as a "nonqualified dividend" (meaning, I believe, it essentially gets taxed as regular income as opposed to a dividend—if I am incorrect here, someone please clarify this situation as this is what I understand about unqualified dividends). The business model is simple. This is an agency MREIT. What that means is they buy only paper behind mortgage backed security. They buy this long term debt by raising money by borrowing through short term debt cycles. I’ll break this down for you—there are several risks an MREIT can entail. First and foremost is default on their paper. Next is interest rate risk. Then early repayment/refinancing. AGNC mitigates the first by only buying gvt backed paper. The Fed is committed to keeping rates low for some time, so that risk is out the window. Anyone who wanted to refinance has already done so and, if they are like me, they are in no hurry to eliminate such cheap debt. Essentially, this is an interest rate play and because of the AGNC business model, one only has to look at the yield curve to see the money pouring in. The spread between short and long term rates is where their profit arises. As the yield curve flattens, the MREITS will get squeezed though I believe these guys are in good shape for the next year or so.