HOT WEATHER COLD MARKETS.

Stopped on My Trip To Pull A Few Weeds Off Blind Lemon's Grave

In Case You Didn't Know. Blind Lemon Jefferson was a blues pioneer. He died in 1929 but had a strong influence over all the old bluesmen. He was relatively successful and had money in the bank when he died, still, they say he froze to death on the streets of Chicago. We just happened to drive by the old cemetery and see the "Blind Lemon Memorial Cemetery" sign. Those who know me very well know I could never miss a chance to stop. Several momentos were left at the grave including an unopened can of beer, an old rusty harmonica, and several guitar picks. The inscription of the grave says: "Lord it's one kind favor I'll ask of you see that my grave is kept clean." Maybe it sounds a bit morose, but I considered it my privilege to pull some weeds and make the place a bit more neat.

Still Watching The Markets. The markets are going close to what I have projected: Nowhere. I am still participating. Selling some stuff, collecting dividends, and writing some options. My assumption is that the market will stay within a trading between 8,000 and 9,000 on the Dow. I am buying only when I can find well-priced dividend stocks and attractive option writing opportunities. My last investment involved buying 1000 shares of Health Care Properties at 20.13 a share. It pays $.46 a share per quarter which amounts to an annual yield of 9.4%. I also hedged my bet by selling calls October 20 calls on the entire investment at 2.13 a share. This immediately reduced my out of pocket investment to 18.00. If the stock stays at the current price, I will have to sell it for 20 in October. That would give me a gain of 11.1% for 3 months (plus dividends). The key to success is sustainability of the dividend. If management finds it necessary to reduce that dividend, my return could go negative, a fact that never escapes me.

The Housing Bubble. There are a lot of folks who would like to blame the lenders for the huge debacle in the housing markets. The prevailing view is that the greedy lenders pushed their risky loans on unsophisticated borrowers while government regulators were "asleep at the switch." The fact is, government regulators contributed a great deal to this mess by trying to regulate lenders to make loans to more risky borrowers. Congress passed the "Community Reinvestment Act" to force lenders to make more loans to minority home buyers. This came about because of some questionable statistics indicating discrimination against minorities by the whole industry group. This was a flawed study as indicated by the fact that foreclosures were not less prevalent among minorities as would be expected if they were held to more strict standards than the rest of the population. The community reinvestment act required detailed reporting by mortgage lenders to prove there was no discrimination. A related Home Mortgage Disclosure Act required even more detailed reporting. As a result of all this, standards were relaxed and less qualified borrowers (minorities and non-minorities alike) entered the market in droves. The federal reserve helped things along by keeping rates on short-term loans at record low levels. The long period of low rates and virtually non-existent underwriting standards pushed housing prices to the stratosphere. So who do we blame? All of the above. Aggressive mortgage lenders, well intentioned legislators and executives who neglected the implications of pushing for relaxed standards, wall street for packaging these loans without really understanding the risk and selling them to investors who didn't understand the risk either, rating agencies who gave these mortgages ratings that didn't reflect the risk. Who suffered the most from mishandling these issues? The very borrowers these measures were designed to help. Why have I gone into this rant? Because I distrust the ability of the government (both parties) to solve our problems through more regulation and that appears to be the direction we are taking.

Waiting For Rain. It's really hot and dry here, in contrast to the rain in Colorado. I should be back in Colorado sometime in early July or late August. Send me an e-mail or call Susan if you want a meeting.