Fascinating Discussion on Iran, the U.S., and Nuclear Weapons

Interesting discussion on Iran, the United States, and aggression.

Thomas More and The Law

Roper: So now you’d give the Devil benefit of law!

More: Yes. What would you do? Cut a great road through the law to get after the Devil?

Roper: I’d cut down every law in England to do that!

More: Oh? And when the last law was down, and the Devil turned round on you–-where would you hide, Roper, the laws all being flat? This country’s planted thick with laws from coast to coast -- man’s laws, not God’s -- and if you cut them down -- and you’re just the man to do it -- d’you really think you could stand upright in the winds that would blow then?

Yes, I’d give the Devil benefit of law, for my own safety’s sake.

–Robert Bolt, A Man For All Seasons

Now, replace the "the Devil" with "terrorist," and think about the Patriot Act's loosening of government/legal restrictions.

Islam and Economics

Not sure how I missed this post about Islam and economics.

Not that surprising, if you ask me. Islamic traders/businessmen seem to have prospered in almost every time period in the world.

Tax Policy

The NYT had an interesting chart that showed--at least in 2003--total tax distribution:

http://graphics7.nytimes.com/images/2003/01/20/business/21DOUBLE.chart.jpg

The breakdown, by percentage of income, was similar, supporting the idea that American tax policy was equitable.

If anyone finds a similar chart for 2008, please leave a comment with a link.

Satire: Healthcare Reform

Awesome post on healthcare reform here. My fav?

The government is incapable of running anything efficiently, and if allowed to offer a health care option, will run health care so efficiently that it will put private insurers out of business.

And I thought satire was dead.

Franklin Templeton Limited Duration Fund's Shareholder Meeting (2009)

I attended Franklin Templeton Limited Duration Income Trust’s (FTF) annual shareholder meeting on September 24, 2009. This meeting was held by the specific fund, not Franklin Templeton (BEN) itself.

I was the only shareholder attending. No refreshments were available. There was no prepared informal presentation.

Four other persons, all from the mutual fund, attended the meeting. Glenn Voyles (Portfolio Manager); Helen Dong (Inspector of Elections); VP Karen Skidmore; and Sr. Corporate Counsel Jason Venner. I was most impressed with Mr. Venner. After the meeting’s formal portion concluded, I asked several questions.

Some background is necessary before explaining my first question. FTF is a closed-end mutual fund. Such funds typically trade at either discounts or premiums due to several factors, including potential liquidity issues. More specifically, unlike open-ended mutual funds, buyers may only purchase shares from existing owners. I asked about FTF’s approximately 8% discount to its net asset value (NAV). I also asked whether FTF’s approximately 20% Fannie Mae and Freddie Mac bond holdings might be the reason for the discount.

Mr. Voyles said there was “no fundamental reason for” the discount. He said during the last fiscal year, there were “more sellers than buyers,” meaning the fund's price was affected by supply/demand issues. He did not believe Fannie Mae and Freddie Mac had anything to do with the discount. He indicated he did not believe the fund would reduce its exposure to Fannie Mae or Freddie Mac.

Mr. Voyles also talked about “mortgage dollar rolls.” I’ve never encountered this term before. According to FTF’s 10K, page 30, mortgage dollar rolls are “agreements between the Fund and a financial institution to simultaneously sell and repurchase mortgage-backed securities at a future date...The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.” Did you get that? I didn’t, so I asked what they were.

Mr. Voyles said that these rolls were a form of leverage. He said that before investing in these rolls, the Fund’s leverage was in the form of auction rate preferred shares. He explained that the rolls were a form of leverage backed by mortgage-backed securities and increased the fund’s liquidity. However, he also said he could not tell me exactly how it works because he was involved in a different research department. (Mr. Voyles is on the high yield bond team, not the mortgage or leveraged loan team.) Mr. Venner was kind enough to show me the exact page in the 10K that defined the term.

When I asked about the auction rate securities (ARS) market, Mr. Voyles said Franklin Templeton was not experiencing any problems. The problem, he said, was that the secondary market (for ARS) has frozen.

Interestingly enough, Mr. Voyles said the “use of leverage has helped returns” by approximately 5 to 6 percentage points (from June 2008 to June 2009). FTF currently holds approximately 100 million dollars in ARS, down from 190 million dollars.

At this point, VP Karen Skidmore seemed concerned I was asking so many questions and told me I could ask only one more question.

I asked why anyone should choose Franklin Templeton over Vanguard or another investment firm. Mr. Voyles said that FTF had a large, experienced team, and its “fundamental research” was outstanding.

I don’t think FTF was prepared to have shareholders attend their annual meeting. I was pleased FTF’s senior counsel was able to show me the definition of mortgage dollar rolls, but I was concerned that even after the meeting, I still didn’t understand how FTF was using mortgage dollar rolls as leverage. My investor "spidey-sense" started going off when no one seemed to be able to explain exactly what the heck these things were.

Investors interested in preferred shares ETFs may also consider PGF, PFF, or PSK, but these investments seem heavily supported by financial companies. In addition, it is unclear whether these ETFs have been paying out dividends consistently.

Overall, I wish FTF was more prepared for its annual meeting. Other than Mr. Venner, I was unimpressed with everyone else at the meeting.

Disclosures: I own an insignificant number of FTF shares. I sent this article to FTF's corporate counsel prior to publication but did not hear back from him.

Wise Words from Neil Postman

From Neil Postman's Amusing Ourselves to Death: 

George Orwell feared those who would deprive us of information. Aldous Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. 

I love the centrifugal bumblepuppy, even though I have no idea what it means. I highly recommend Amusing Ourselves to Death. 

Bonus: "The law is what legislators and judges have written. In our culture, lawyers do not have to be wise; they need to be well briefed." -- Neil Postman 

Bonus II: hat tip to Popehat's Patrick for finding THIS incredible visual graphic/comic of the Huxley-Orwell divide.