Bought 50 of the TP STLPRA/ Fed Minutes/Negative Home Equity/FDIC Deep in the RED/WIN SNV

1. Negative Home Equity: First American CoreLogic reported yesterday that 1 in 4 homeowners owe more than their home is worth. This does not include all homes in the U.S. but 47 million homes with mortgages or over 85% of the homes with mortgages. This report is available at the firm's web site. The WSF had a helpful graph which shows the negative equity percentages by state. In states that displayed the most madness, the negative equity percentages are staggering. Florida for instance has a 44.7% negative equity percentage, Nevada is at 65%, and Arizona is at 47.9%.

The government has its home price data that it collects based on Fannie and Freddie mortgages. This data showed a .02% seasonally adjusted increase in home prices with that subset in the third quarter. www.fhfa.gov .pdf

2. FDIC Insurance Fund in the Red: The FDIC reported yesterday that its insurance fund fell into the red by 8.2 billion. NYT Also, the number of banks on the FDIC problem list rose to the highest level in 16 years increasing to 552 as of 9/30, compared to 416 as of 6/30. FDIC: Press Releases - PR-212-2009 11/24/2009

3. Five Year Treasury Auction: The five year treasury was auctioned yesterday to yield 2.175%. The total auction proceeds were over 43 billion. www.treasurydirect.gov .pdf The average rate on a 30 year mortgage is below 5%: msnbc.com

The RB just had an idea. Once the U.S. has borrowed all of the money in the world, drained all of those suckers dry of their cash, the U.S. could then lend some of the money back at higher rates and make money on the spread.

4. Bought 50 of the TP STLPRA at $8.99 Yesterday (see Disclaimer): I placed this TP in my regular IRA, so that I can receive some value in the event it tanks on me, by including it in the next Roth conversion. This a $10 par value typical Trust Preferred issue, a maturity date in 2032, and a coupon of 8.375%: sec.gov

I have mentioned that a Trust Preferred security is frequently confused with a regular preferred stock. A typical bank trust preferred security represents an undivided interest in a junior bond held in a Delaware Trust form by the bank. In the case of STLPRA, the bank is Sterling Bancorp (STL) and the name of the trust is called Sterling Bancorp Trust I. That trust then sells "preferred" shares in the trust to the public, hence the name trust preferred. STL owns the common shares of the trust. The proceeds are used to buy a junior bond issue from the bank. Sterling Bancorp then guarantees the performance of the trust in the manner described in the prospectus. The underlying security in the trust is a bond, and that bond would be more senior in priority to the bank's common or traditional preferred stock which I frequently call "equity" preferred. The owner of STLPRA would not receive distributions classified as dividends but as interest.

Sterling Bank did participate in the TARP program, and the government bought cumulative equity preferred shares issued by Sterling. 8-K In order to defer the interest payments on STLPRA, Sterling would have to defer paying the government its dividends on its equity preferred.

Prior to yesterday, I was not familiar with Sterling which explains the very timid purchase of its TP. I did review a few materials. It is a small bank based in NYC. Sterling National Bank - Sterling Bancorp It does pay a common dividend which is important to an owner of the TP under the stopper provision. The bank is profitable, though earnings have declined during the recession. STL earned, for example, 10 cents in the last quarter, down from 21 cents in the year ago quarter. www.sec.gov/ Gabelli funds have a significant stake in the common shares according to a recently filed 13-D. stl_05.htm The consensus earnings estimate for this year is 32 cents and 54 cents next year according to Y F .

This is a very thinly traded issue. When I placed a market order late in the day, there were no prior trades, and 100 shares was on the ask side at $9 and a few hundred bid at 8.85. Since I was satisfied with a $9 handle, I place an odd lot market order which was filled at 8.99. At a $9 total cost, the yield would be about 9.3%. I would expect little, if any, price appreciation over the near or intermediate terms.

As usual with these bank TP purchases, I would emphasize my belief that an owner of a junior bond in a bank seized by the FDIC would be holding a worthless piece of paper. Some investors are under the mistaken impression that they will receive something even for their common stock in a failed bank, which is why I would just say again- do not expect anything unless you hold a properly perfected security interest in collateral owned by that bank.

5. Fed Minutes: My investment strategy now is being dictated by the Federal Reserve. Savers and other responsible people in the U.S., who have not borrowed more than they can afford to service, will pay for the profligacy, greed and irresponsibility of others, many of whom, including the Masters of Disaster, have kept their spoils as the system rewarded irresponsibility and recklessness while socializing the risk. The FED continues to indicate that the savers will be put in the penalty box for an "extended" period. In order to receive some kind of return on my money, I have no choice but to take more risk. The alternative is to earn a negative real rate of return in treasury bills and money market funds. The most recent statement by the FED expressing its intent to penalize the responsible people in our society for an extended period is contained in its minutes from the early November meeting: www.federalreserve.gov

Part of the statement expressing the FED's current view about the future course of policy is as follows:

" The recovery appeared to be continuing and was expected to gradually strengthen over time. Still, most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve’s objectives. Based on this outlook, members decided to maintain the federal funds target range at 0 to 1/4 percent and to continue to state their expectation that economic conditions were likely to warrant exceptionally low rates for an extended period."

A recognition of a possible, if not probable result of its policy was also made:

"Members noted the possibility that some negative side effects might result from the maintenance of very low

short-term interest rates for an extended period, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations. While members currently saw the likelihood of such effects as relatively low, they would remain alert to these risks. All agreed that the path of short-term rates going forward would be dependent on the evolution of the economic outlook."

The Fed expects unemployment to remain well over 9% throughout 2010, with their current prediction being 9.3 to 9.7%.

5. Winstream (WIN)(owned): Windstream continues its acquisitive bent by agreeing to acquire Iowa Telecommunications for 530 million plus the assumption of 598 million in debt. The deal calls for Winstream to pay about 261 million in cash and the rest in stock. This would value Iowa Telecommunications at around $16 per share based on Winstream's closing price last Friday. I view this deal negatively on the price paid. Iowa Tel is expected to earn about 51 cents in 2009 and is highly leveraged. These acquisitions are starting to worry me some. This one makes no sense to me. Still, I do not need more money earning nothing, and my yield is good on the Winstream stock.

6. Synovus (owned Lottery Ticket category): Yesterday the common stock of Synovus closed at $1.49 with a volume of 43,298,222 shares.

The Chairman & CEO of Synovus Financial is a fellow by the name of Richard E. Anthony. Mr. Anthony has been CEO of Synovus since July 2005 and President since October 2003. Before then he was Vice Chairman since September 1995. He is currently being paid close to a million a year. BusinessWeek Why is he still employed? The closing price yesterday was the lowest price since the Yahoo Finance chart started in 1990.

I am curious why American companies insist on generous rewards for failure. Isn't it clear that Mr. Anthony has failed, along with his management team and the Board of Directors? A few months ago, there was a story in the Atlanta Business Journal about a 220 million dollar non-performing loan made to Sea Island Company, a resort developer, by Synovus. Atlanta (report of a lawsuit relating to disclosures about this loan Jacksonville.com )(see also yesterday's Bloomberg story) Mr. Anthony was quoted then as saying that the exposure to Sea Island was much higher than appropriate for a bank the size of Synovus. Really! And, when exactly did that occur to Mr. Anthony, before or after the 220 million dollar write-off? It is scary when you start to look closely at the competence of those running our financial institutions.

(The excellent series called the Reckoning in the NYT showed without a doubt that a large number of those Masters of Disaster were in fact far worse than worthless. The Reckoning - Series - The New York Times Actually, the Old Geezer is being too kind to them. LB says that as a group they had a negative value of about 5 trillion dollars. If the Masters of Disaster were experts in anything, it was in the creation of illusory profits as a base for their outlandish compensation. And who wants to defend now the hundreds of millions paid to the financial wizards at AIG's London Financial Products Unit NYT, or the twenty million a year "professionals" who used 40 to 1 leverage to buy CDOs squared containing subprime mortgages?)

The market is basically saying that there is no confidence left in Synovus, and more protestations of capital adequacy will fall on a lot of deft ears. If that is a correct assessment, it is not irrational. The bank has reported a comprehensive loss of 1.182 billion during the first nine months of 2009. (page 10 e10vq) The treasury sunk $967,870,000 into Synovus for equity preferred stock, more than the current market cap of the bank which stands at around 750 million at the $1.5 price. The recent pronouncement by Mr. Anthony concerning the bank's solvency (Reuters) did result in a temporary pop of a few pennies above a $2 handle on the stock, before falling to a new all time low yesterday of a $1.5. I am a recent shareholder with just a 50 share buy as a Lottery Ticket, viewed as speculative with a high potential of a loss. Even though I lack confidence in the management of this bank, to say the least, it is conceivable that the author of this article is right about the loss cycle peaking ( Guru), though I do not share his optimism.

7. Dividends and Interest: The Aegon and ING hybrids that I own will go ex dividend on Friday. This includes IND, IGK, INZ, AEB, AEH, and AEF. The two Zions equity preferred stocks, ZBPRA & ZBPRC, both owned, go ex dividend too along with my shares in the floating rate equity preferred issue from SunTrust Bank, STIPRA. Suntrust is paying just a quarterly dividend of just 1 cent a share to its common shareholders, but that 1 cent is as meaningful as a dollar under the stopper provision. Coca Cola common, owned, goes ex dividend on Friday. KeyCorp goes ex with its one cent per share common dividend, and I recently added one of its TPs and I own the common as a LT. PFK, the Prudential CPI floater, goes ex with its monthly interest payment. Prudential has another exchange traded bond, PHR, which goes ex with its quarterly interest payment. That one has a 9% coupon and is a junior bond maturing in 2068. Prospectus Supplement I do not currently own PHR due to the maturity date but I may get desperate enough to buy it soon. PennWest declared its regular monthly distribution of 15 cents Canadian. I take my dividend from Canadian companies in Canadian dollars.

Brookfied Infrastructure, a recent add (Added to BIP), is ex dividend today.

A cornerstone of my investment strategy is to buy a lot of securities that throw off cash, and to use that constant flow of income to buy more securities that throw off cash, hopefully making the most opportune picks with each reinvestment of cash flow, choosing among all types of income generating securities including preferred stocks (fixed and floating), synthetic floaters, trust certificates, trust preferred, exchange traded baby bonds, closed end investment funds with monthly or quarterly distributions, canadian energy trusts, and high yielding domestic and foreign common stocks. So this approach requires a lot of information about a wide variety of potential investments and a considerable number of judgments made continuously.

8. Tidbits: Frequently, those who played a role in the causing the Near Depression disclaim any responsibility for their role. In fact, they present themselves as a victim of some kind of natural disaster, rather than a cause of a man made disaster. It would be analogous to listening to a lawyer for an arsonist blowing smoke at the jury, arguing that his client was not responsible for burning that building down since he only started the fire in one room.

One major cause of the Near Depression is the assignment of a AAA rating to pools of mortgages securities known as CDOs by the rating agencies. Without that rating, the securities could not be sold by Wall Street, who would then use the proceeds to fund the origination of more mortgages by firms who are now bankrupt to borrowers who clearly could not afford the payments. In fact, those mortgage pools were frequently nothing more or less than toxic junk. This provided the fuel for the easy credit that caused a distortion in home prices to levels than made no economic sense based on incomes.

The rating agencies are now being sued for their role and are claiming protection under the First Amendment. Bloomberg They were paid by the Wall Street firms that bundled the securities for sale and who had to have that AAA rating to complete the transaction. So I read with amusement the following statement by Moody's in response to a suit filed by Ohio: “It is unfortunate that the state attorney general, rather than engaging in an objective review and constructive dialogue regarding credit ratings, instead appears to be seeking new scapegoats for investment losses incurred during an unprecedented global market disruption.” NYT

Some of my prior discussions about the role playing by the rating agencies in causing the Near Depression can be found in these posts:

UNFIT IN SO MANY WAYS

Notable News 10 23 2008: We Drank the Kool Aid

Item # 8: Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM

David Faber's Program "House of Cards" CNBC.com discussed at Rendition to Somalia

Zuckerman editorial

A summary of some of the issues can be found in this article The Reckoning series from the NYT.

One thing will probably end up being true. Those who made money on each step in the transaction will keep their booty, whereas the ones who received nothing will pick up the tab for cleaning up their mess. All of that comes under the heading, life can be unfair, deal with it.

The ING shareholders are voting today on proposed breakup plan and the 7.5 billion Euro rights issue, the last step needed before ING actually starts to implement the restructuring plan recently approved by the EC. Reuters says the shareholders are expected to approve the plan.

Order for durable goods fell unexpectedly in October, declining .6%. Machinery had the largest decrease with a 8% decline. www.census.gov .pdf

Weekly jobless claims fell by 35,000 to below 500,000ETA Press Release: Unemployment Insurance Weekly Claims Report This data is seasonally adjusted. If you look at the unadjusted data , the total increased 68,080 to 543,926. LB had to think about that one for a second.

Added 12 p.m. ING shareholders approved the rights issue and the restructuring plan. Reuters Pending a successful rights issue, and I anticipate no problems now, the EC will not compel a deferral of the hybrid coupons.

3rd GDP Revised Down to 2.8%/MDT & HNZ Earnings/UBSI Dividend Raise/More on ZBPRA/EHL/ Case Shiller Index

1. GDP: The first revision of 3rd quarter GDP was released this morning. GDP was revised down to 2.8% from the prior estimate of 3.5%. News Release: Gross Domestic Product Consumer spending was revised down from 3.4% to 2.9%. It is going to take a long time to recover from the Near Depression. It may take as long as 5 to 7 years to recover the jobs lost from October 2007 to the date the U.S. shows its first monthly job gain sometime next year. This is my current view, always subject to change based on new data, and it dictates the overall strategy going forward of continuing to emphasize the purchase of income generating securities, other than low yielding treasury notes and bonds.

2. Medtronic (owned): Medtronic reported earnings for the 2nd quarter of its fiscal 2010 year of 78 cents (.77 non-GAAP), on a 8% increase in revenues on a constant currency basis. This beat the consensus forecast of 74 cents. Medtronic also raised its forecast for fiscal 2010 to $3.17 to $3.22 from $3.1 to $3.2. The Old Geezer, acting Head Trader, was trying to remember what the game plan was for Medtronic, and may need to request LB's assistance on that issue. MDT is trading up over $3 per share in early trading today. ADDED: LB replied that it had calculated $50 as a potential upside target back in September: Item # 7 Added to Medtronic

3. United Bankshares (UBSI )(Own): This is one of the banks that I placed in category 2 of my bank stock purchases, as explained in yesterday's post. United Bankshares increased its dividend yesterday for the 36th consecutive year. The quarterly increase was from $.29 to $.30 per share. UBSI noted in the release that its dividend had increased at an average rate of 9% per year over that 36 year period. At a 9% rate of increase, a dividend will double in 8.04 years. While the rate of growth may be slower in the future, and is ultimately unknowable now, UBSI is still a relatively small bank with a market capitalization of around 750 million, and it is included in the S & P 600 small cap index. I discussed my purchase in a blog dated 11/17: Bought 50 of UBSI UBSI is one of the banks that refused TARP money. MONEY magazine ran an article in September about how the stocks of banks which refused government bailout money have outperformed those who received TARP funds. UBSI is up almost 4% in early trading this morning.

4. Entergy Louisiana (own First Mortgage Bond-EHL): I noticed that this subsidiary of Entergy issued some more First Mortgage bonds recently. www.sec.gov/ The new issue was for 400 million with a 5.4% coupon and a 2024 maturity date. EHL which I own has a higher coupon of 7.6% and is currently selling at over its $25 par value. It is possible that some of the proceeds might be used to redeem outstanding bonds. At a minimum, that possibility will keep me from buying any additional shares of EHL above par value. My existing holdings were purchased last October at $22.75: END OF DAY TRADES (IR, INTC, TE AND EHL)

5. Saturday Night Live Skit of Hu Jintao and Obama Joint News Conference: Video - NBC.com This is a funny and scorching satire of Obama's policies, and raising a few interesting points with the comedy.

6. EX Interest or EX Dividend: For Wednesday 11/25/09, I noted that the following securities which I own will go ex dividend or ex interest. Both XFL an PJL, the TCs containing the same Verizon senior bond, go ex for their semi-annual interest payments. EMO, the first mortgage bond from Entergy Mississippi, goes ex interest on its quarterly payments. Some of the synthetic floating rate securities, which make monthly interest payments, GJN and GJT, will go ex. GJN has a guarantee. The TP from Zions, ZBPRB, goes ex with its quarterly interest payment. METPRA, a floating rate equity preferred from Met Life, goes ex dividend with its quarterly payment. GXP, an electric utility, goes ex dividend. And lastly, KTV, a TC containing a TP issue from First Union, goes ex with its quarterly payment (First Union was acquired by Wachovia who was in turn acquired by Wells Fargo) Rounded KTV to 100 Shares When I look at the WSJ dividend page each night (Dividends - Markets Data Center - WSJ.com), I sometimes see one or two securities that look interesting to me that I do not own, which is another reason for this exercise.

7. Zions Offer to Exchange Common Stock for ZBPRA (own): My shares of ZBPRA rose almost 25% yesterday on Zions second offer this year relating to those shares. I refused to tender my shares in response to the dutch tender offer which was completed at a $11.5 price for this $25 par value floating rate equity preferred stock. Form 8-K

I am not going to participate in this second attempt to get rid of ZBPRA shares on the cheap. Besides, I would rather own my ZBPRA shares bought at $7.8 than common stock currently paying a penny a quarter in dividends. At my cost, the guarantee provided by ZBPRA is worth almost 13% to me. Bought 100 ZBPRA at $7.8/Corrections Corporation Earnings I will receive a higher yield when 3 month LIBOR rises above 3.48% during the relevant computation period set forth in the prospectus. My ZBPRA is in parity with the government's preferred stock and senior to the common stock. As long as dividends are paid on the common, Zions has to pay me and the government. And, it would have to defer paying the government its dividend in order to eliminate the non-cumulative dividend for ZBPRB. I go into these issues in great detail in an earlier post: See Item # 7 Bought 50 ZBPRB in Roth at $19.9

In the SEC filing for the exchange, Zions make it clear that ZBPRA is a parity stock with the government's preferred D:

"Shares of the Series A Preferred Stock rank senior to our common stock, equally with our Series C Preferred Stock and Series D Preferred Stock and at least equally with each other series of our preferred stock we may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock and any other class or series whose vote is required) with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up." Page 33 Offer to Exhange

I have previously discussed the stopper provisions and the exchange offer filing summarizes this important provision for the equity preferred owners:

"So long as any share of Series A Preferred Stock remains outstanding, on any day during a dividend period (1) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any junior stock (other than a dividend payable solely in junior stock), (2) no shares of junior stock shall be repurchased, redeemed or otherwise acquired for consideration by us, directly or indirectly (other than as a result of a reclassification of junior stock for or into other junior stock, or the exchange or conversion of one share of junior stock for or into another share of junior stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of junior stock) nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by us, and (3) no shares of parity stock shall be repurchased, redeemed or otherwise acquired for consideration by us otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such parity stock except by conversion into or exchange for junior stock, during a dividend period, unless, in each case, the full dividends for the immediately preceding dividend period on all outstanding shares of Series A Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside." Page 28 Offer to Exhange

The terms of the exchange offer is contained in this recent filing with the SEC: Offer to Exhange So why would I give up ZBPRA for common shares paying me almost nothing, and what I would view as another miserly offer to boot? The LB says no and HK concurs. The OG was too busy trying to finish Taleb's book, Fooled by Randomness, which contains a lot of philosophy, to offer an opinion on such mundane matters. OG has made it to page 45. After all OG added, HK named the LB the new acting Department Head in Charge of Responding to Exchange Offers, a post that gives it plenty of opportunity to be a Nerd and to show off.

Separately, Zions said that it would be seeking a tax refund for a substantial majority of the 340 million in federal income taxes paid in 2007.

8. Heinz (owned): This was one of the consumer staple stocks bought in March 2009 : Buy of HNZ at 31.67 Heinz reported earnings for its 2nd quarter of 76 cents from continuing operations, better than the consensus forecast of 69 cents. While earnings were down 10 cents from the second quarter of fiscal 2009, that quarter included an 18 cent gain from currency hedging. Heinz also increased it earnings estimate for fiscal 2010 to $2.72 to $2.82 from $2.6 to $2.7.

At the current quarterly dividend rate of 42 cents ($1.68), the yield at a total cost of $31.67 is around 5.3%. Heinz has an erratic dividend history from my perspective. Based on the VL data, it was raising the dividend every year starting in 1993 to 2002, when it reached $1.6 per share. The dividend was then reduced all the way back to $1.08 in 2003. Since then it has been raised every year and finally worked its way back to a tad more than the level in 2001. The pay out ratio is close to 60%. I would put this holding in the category of a hold provided the dividend is raised every year.

9. Case Shiller Index: The index for 20 large metropolitan cities rose .3% in September. www.standardandpoors.com The 10 city composite was up .4%.

10. 2 Year Treasury Note Auction: The 2 year note was auctioned yesterday to yield .75% on the coupon and .802% with the OID. www.treasurydirect.gov/ This was for 45.321 billion in 2 year notes. The weekly 3 month treasury bill was auctioned at .04%, in effect and for all practical purposes free money for the U.S. government. http://www.treasurydirect.gov .pdf

The volatility index for the DJIA, VXD, is currently under 20 again.

Regional Bank Stocks/Divorcing Demand For A Service From Any Responsibility to Pay for It/CPB/ Existing Home Sales/ZBPRA

Rather than listening to more whining from the LB about its dismissal as Head Trader here at HQ, Headknocker has generously decided to mollify the LB by giving it several new titles, including Head of Research, Chief Market Theoretician, Department Head for Macro Economic Analysis, and Chief Nerd.

In one of its new job descriptions, and not exactly sure which one is applicable, LB notes that there is unusual activity in ZBPRA to the upside, rising on heavy volume almost 25%, based on Zion's offer to exchange those shares for common stock. Zions LB notes that it bought those shares at $7.8 (Bought 100 ZBPRA at $7.8), further noting that two dividends have been received so far with another about to be paid, so it was curious whether HK would reconsider LB's dismissal as Head Trader or at least remove from the profile section the reference to ZBPRC. HK responded that it would give the LB another title, Department Head in Charge of Responding to Exchange Offers.

1. Home Sales: The National Association of Realtors reported a 10.1% surge in October's existing home sales. Existing Sales activity was at the highest level since February 2007.

2. Regional Bank Stocks: I was reading Jim Cramer's new book (Getting Back to Even) at my local library, Barnes & Noble, and he does make a cogent case for some of the regional bank stocks, at Chapter 6 pp. 140-162. I have elected to monitor just two of the five, and will try to figure out a decent entry point for 50 share purchases in keeping with my strategy in this area. Cramer's theme is that the current situation is analogous to the last major debacle for the banking system circa 1990-1991, primarily known under the rubric of the S & L crisis. Once that was cleaned up at a tidy cost to the taxpayers, several banks emerged as winners, and he discusses one of them Fleet Boston. I have mentioned that, once the garbage was removed, a large number of surviving banks entered a long secular bull market for the banks, lasting from around 1993 to 2007. This can be verified by simply going to YF and pulling up a number of long term charts.

The Old Geezer remembers this period, and cautions that history may not repeat itself. RB came up with idea, and the LB formulated a strategy, and started to implement it back in March to play a possible repeat of history without risking too much of Headknocker's capital. The first prong of the strategy is patience and time. The second is to divide the banks into two categories of risk. The first category is viewed as having the most risk, and my investments in those banks are classified as lottery tickets with a maximum capital exposure of $300. The second category are banks viewed as less risky and even with those institutions my capital limit is around $2000. Based on my evaluation of the bank's progress, I may take a buy out of the LT category and place it in the second category. I have already done this with EWBC and WL, both originally classified as LTs and now part of the second category which allows me to increase my investment. I do not intend to do that with EWBC, but may with WL. I will sell a position before five years if I become convinced that the bank is sliding toward oblivion, which has happened once so far with a bank that was later seized by the FDIC, UCBH, and where I took about a $50 loss earlier in the year. Sold UCBH at a Loss/ I expect failures. The trick will be to cut the losers before the loss hurts and allow the others to run. Two of the purchases have already doubled or more in price, with the biggest gainer so far being EWBC followed by WBS. The lottery ticket purchase links which includes the banks can be found in my Gateway Post for all LTs which is one of the posts which I try to update with new links: LOTTERY TICKET PURCHASES: LINKS IN ONE POST

So far, I have initiated LT positions which I will just call Category 1 in the following banks:

Category 1: Less than $300

Webster Financial (WBS) at $4.58 Buy of 50 WBS: Lottery Ticket/

Regions Financial (RF) at $3.47 Lottery Ticket in 50 shares of RF/

Key Bank (KEY) at $5.88 Bought 50 KEY-Lottery Ticket

Huntington Bank at $4.27 Bought 50 Huntington Bank as Lottery Ticket

Synovus Financial at $3.73 Bought 50 LT SNV at $3.73/

Wilshire Bank at $6.54 /Bought LT WIBC/

Susquehanna Bancshares at $5.85 /Bought 50 SUSQ AS LOTTERY TICKET-PART OF LB'S SHOTGUN APPROACH TO REGIONAL BANK STOCKS

Category 2 $300 to $2000

Wilmington Trust (WL) (originally in Category 1) at $9.98 BOUGHT 30 WL=Lottery Ticket

EAST WEST (EWBC) (originally in Category 1) at $5.7 Buy of 50 EWBC as Lottery Ticket

New York Community Bank at $10.9 to $11.3 Bought 50 NYB at $11.3 50 NYB at 10.9 50 NYB at $11

United Bankshares (UBSI) at 16.65 Bought 50 of UBSI

3. 10 Dividend Stocks Recommended by Barrons : The Barron's web site was down most of Sunday, and I was not able to read most of the articles in the magazine, including the one just about AT & T until this morning. For those who do not have access to Barrons, which is subscription based, this article in Reuters summarizes the 10 dividend stocks recommended in this week's issue and this article summarizes the story about AT & T- Reuters. I subscribe to both the online editions of Barron's and the Wall Street Journal which costs somewhere around $160 per year, with about $49 of that for Barron's. The Barron's article about AT & T (own common and bonds) is generally positive, while acknowledging that the end to exclusivity on the IPhone will be a negative for AT & T and a positive for Verizon. Barrons

4. Howard Dean's Memory Lapses: Howard Dean claimed recently that the Democrats pushed Medicare in 1964 and Social Security in 1935 without Republican support until the very end "when they realized they had to get on board". This did not square with my memory. Both Medicare and Social Security had substantial support within the Democratic party, and were initiated by Democrat Presidents. And, to be sure, most of the opposition came from members of the Republican party. But the GOP had not been kidnapped by the American Taliban movement, which is a recent phenomenon, occurring gradually after Reagan's presidency. There were many Republicans, particularly from the Northeast, who would be viewed as liberal or moderates by the mainstream GOP voter today, who would work tirelessly to defeat them in a primary if any of them were still around. Now, those individuals are gone from the party, and there is no longer a single Republican congressman from New England. So Politifact rated the Dean statement as false. PolitiFact Although no house republican supported social security until it reached the House floor, 81 House republicans did vote for final passage of Social Security (Vote tallies on 1935 law) and 70 voted for Medicare. Only 13 Republican senators voted for the passage of Medicare. In both 1935 and 1965, as now, the Democrats were the majority party with one of their own in the White House, and enjoyed solid majorities in both houses of Congress.

The public perception, possibly embedded by years of Democrat campaign commercials, is that the GOP opposed Social Security and Medicare, and that is an incorrect perception. A number of prominent members of the GOP opposed Medicare and called it socialism, including many who were prominent within the party. Investments for Unexpected Inflation/ Jesus & the Prosperity Gospel/More on Sarah and her Death Panels/

But those programs also had significant support within the old GOP at the time of their passage.

It does not appear likely that there will be any GOP support for the Democrats' latest health "reform" legislation, possibly a few votes. Over the short term, I suspect that this united opposition will be beneficial to the GOP. If the Democrats succeed in passing a bill similar to the one being debated now in the Senate, and it becomes anywhere near as popular as Medicare, then in the longer term the GOP's unanimous no will turn into a negative, and Democrat campaign commercials could accurately convey the GOP's hostility to the program. Over the years, I think the Democrats have frequently mislead the public in their commercials when discussing a GOP candidate and social security. I focused in October 2008 on one such commercial from the Obama campaign. Trust Certificate JZJ AT & T BOND FactCheck.org: The Whoppers of 2008

5. Sarah Queen of Gibberish: Maureen Dowd quotes a passage from Sarah's interview with the fawning Bill O'Reilly, referring to Sarah's Yoda syntax. NYT I listen to Sarah and frequently say to myself, what did the Queen of Gibberish just say. I thought that Maureen was being most unfair to Yoda.

6. LionsGate (owned-Lottery Ticket category): The movie "Precious" expanded from limited release to wide release, showing in 629 theaters over the weekend. The estimated gross starting last Friday through Sunday was 11 million, or around $17,500 per theater. Apparently, investors are not impressed with that result as LGF continues to slide, trading around $5 in early trading today. More information about LGF's upcoming movie releases can be found at LIONSGATE.

7. Elizabeth MacDonald & Forbes Join Limbaugh and Beck on Health Care Rationing Scare-Emblematic of the Ongoing Problem of Divorcing Demand for Service and the Responsibility to Pay for It: I was listening to Forbes on Fox Saturday, and I heard Elizabeth MacDonald claim that Great Britain, with its national health care system, denied treatment for cancer, MS and virtually every major illness that her brain could then remember Media Matters for America Maybe Ms. MacDonald is suffering from that TB illness called hyperbole, a common affliction. So if I understand the argument, if the Democrats succeed in passing their health bill with a public option, those without health insurance would be worse off. It is also interesting to me that the so-called conservatives want unlimited access to health care with no cost controls which they call rationing to give it a pejorative connotation, basically turning healthcare access into an unlimited constitutional right without regard to costs and effectiveness of treatment. It is hard to see that view as the conservative one, more like what you would expect from liberals of the irresponsible persuasion.

A less hysterical view of Great Britain's health care system is in this article published in the this Wikipedia article and this more general article from the The New Yorker. Every health care system rations healthcare, as that term is being used in discussions today, and that would be apparent to those who have had coverage issues with HMOs and private insurance plans in the U.S. We Already Have Health-Care Rationing in U.S | Newsweek.com And healthcare is already rationed in the U.S. based on ability to pay.

When you listen to the TBs and their publicists at Fox, one fact which escapes their attention is that Medicare is a government run insurance plan, and one is hard pressed to find "rationing" in that system. In fact, the government is barred by law from making any decisions based on cost and the result, as made clear in a 60 minutes segment last night will be spiraling out of control costs. 60 Minutes - CBS News The bottom line is that the U.S. will spend and borrow itself into financial ruin, probably though not in my lifetime but within fifty years. For spending on healthcare, just part of the overall problem, the underlying cause is that demand for healthcare has been completely divorced from any responsibility to pay for it, primarily through government and private medical insurance. So, for example, if a Medicare patient wants a cancer drug which possibly may prolong life for a month or two, and costs $50,000 a month, they have a right to have it at the expense of the government. Or as shown in the 60 minutes program, a patient has the right to receive expensive treatment in an ICU at the end of life, rather than dying in peace at home or in a hospice, and taxpayers have an obligation to pay for that individual decision. Any change in that system is called rationing, or the creation of "death panels" by those who pretend to be concerned about federal spending but frequently make it impossible to control it.

One reason that I oppose the Democrats' health "reform" is that it will create more demand for medical services without any restraint or consideration on the costs of providing that service, or any meaningful attempt to relate cost with effectiveness of treatment or the improvement in the patients health or prospects for recovery. It will be more of the same so the critics miss the point. In the end, it will become another bottomless pit like Medicare because there are no meaningful cost controls.

8. Tidbits: DKR, the TC with the senior Hertz bond, goes ex interest today for its semi-annual interest payment. The shares were bought at $6.45 (DKR) , and this will constitute the third payment since the purchase of those shares. DKR Stock Quote - Saturns Hertz Corp Ser 2003- UNIT A 7% 2012

The NYT has an article that makes some obvious points: the interest rates paid to finance the national debt are abnormally low, the debt is ballooning at an unprecedented speed, the government has to constantly refinance the debt and the low rates will eventually end as financial conditions improve. It is not hard to predict now that the nation will be paying more than a trillion dollars a year to service its debt due to a combination of those factors in the not too distant future. Prior to the downturn in rates, the interest expense for fiscal year 2008, ending in September 2008, was 451.154 billion dollars. Government - Interest Expense on the Debt Outstanding Both parties are responsible for this inevitable, and brewing disaster, but ultimately it is the responsibility of the American people as a collective who have been conditioned to expect services as their birthright without having to pay anywhere near the full cost.

It is estimated that 42% of the 25 billion dollars in outstanding condo construction loans were delinquent in the 3rd quarter. NYT Apparently, some of the Wall Street bankers funded this disaster based on the premise that everyone else was doing it so it must be smart. As I have said in the past, never before in the history of mankind has there been another group of people who were paid so much to be doofuses. Masters of Disaster-Talented?

9. Campbell Soup (owned): Campbell reported earnings for its 1st quarter at 87 cents per share, excluding items, which was six cents better than the consensus estimate, and CPB raised its fiscal 2010 EPS growth and sales levels. The shares currently owned were bought at $25.35. CPB Buys of CPB LQD SYY XKK Sales decreased 2%. Currency added 1%. Volume and mix subtracted 4%. The weakness in the dollar is starting to add to results. I have mixed opinions about continuing to hold CPB, but I do not need anymore cash earning zero in a money market account. So, for now, as long as the dividend continues to be raised, and I have a low fixed cost, I will probably keep the shares.

Unlike other consumer staple stocks bought in March, like Coca Cola and Sysco, Campbell Soup does not have a history of dividend growth. The VL data shows that dividends were increased from 1993 to 2000, moving from 46 cents to 90 cents, which is what I like to see. Then, CPB ran into some trouble and cut its dividend to 63 cents in 2002, and the stock slid from a high of $62.9 in 1998 to a low of $19.7 in 2002. CPB started to raise the dividend from this reduced level in 2004, and by 2009 the annual dividend exceeded the the amount in 2001. In my classification system, this is an inconsistent and unreliable pattern of dividend growth. Possibly CPB will continue to increase the dividend for years to come, but I give it less credence on that score than I would a KO, SYY or many other consumer staple companies based on CPB's prior history which I will never disregard. CPB did just raise its quarterly dividend by 10% to 27.5 cents.

Treasury Bills and Notes-Negative Real Rate of Return/Dividend Paying Stocks & Bonds/LB Defends ZBPRC purchaseu

1. Treasury Bills and Notes: The 3 month treasury bill briefly went into negative territory last Friday before closing at .015%. MDC - Java Chart - WSJ.com The 2 year treasury note closed at .728, a little closer to 1%. MDC - Java Chart - WSJ.com CPI is about to turn positive year over year when the government releases the November number on 12/16/2009 which will replace the deeply negative number for November 2008. Bureau of Labor Statistics Data In a few weeks, the purchasers of the two note will not be able to claim it produces a real rate of return after inflation. It will be clear that all of the shorter dated treasuries have negative real rate of returns. This is already the case for the 3 and 6 month treasury bills that have been auctioned over the past several months when the CPI numbers have already turned up for the corresponding maturity periods for those treasury bills. For an individual buying those securities in a taxable account, the taxation of the minuscule interest simply adds insult to injury, and produces an even greater negative real rate of return. The treasury is auctioning on Monday 44 billion in two year notes, matching the prior month's record. On Tuesday, the treasury will auction 42 billion of five year notes, and 32 billion of 7 year notes on Wednesday. Two-year The five year note closed Friday at 2.14% yield.

There is some debate about what these low rates are signaling. At a minimum, the fall in 2 year rates indicates a belief that the Federal Reserve will maintain the federal funds rate at its abnormally low 0% to .25% for about another year. Even 7/10 of 1% is better than another year of nothing in the bills and money market funds. In case anyone is interested, an investment earning a tax free yield of 1% will take 69.66 years to double. Estimate Compound Interest (.5% takes 138.99 years). This bleak state of affairs for a conscientious saver, who borrowed earlier in life only what could easily be repaid and who has no debt now, is starting to influence my current decision making process more than any other event or opinion, and has caused me to restart purchases of bonds including some that I sold earlier in the year (e.g. EMO & JBI). I will then reassess in a few months whether or not to pare again some of the lower yielding, longer dated maturities. By lower yielding I am referring to fixed rate coupon bonds that yield in the 7 to 8% range, particularly those bought at or near par value.

Another interpretation of the low yields goes beyond the current Federal Reserve policy. This view is simply that the recovery will at best be anemic and short lived before turning down again. For those who believe that the economy is about to sputter again, and deflation or disinflation is still the likely course of events, the return of your money is more important than the return on your money. Those who advocate this view include Alan Abelson and his soulmate David Rosenberg, and some of the data points relied on by them are included in Abelson's Barrons column at page 2. Some of Rosenberg's recent missives are available for reading on Scribd. Dave 112009 Dave 111909

I am not going to buy any common stocks on Monday. I want to see how the market reacts to a revised GDP forecast for the 3rd quarter scheduled to be released on Tuesday. The original number was 3.5% growth and the consensus is now saying that number will be revised down to 2.9%. Table I will continue the bond buying.

2. Dividend Paying Stocks: I focus most of my buying on securities that pay dividends or interest. As a rule, I will not invest more than 10 thousand dollars in securities from a single issuer. It would not be unusual for me to own the common, a preferred issue(s), and one or more bonds issued by a single firm, and frequently I will have more funds invested at the top of the priority ladder than at the bottom. For example, I have more money invested in senior AT & T bonds than the common, but I still own some common shares in both a taxable and a retirement account. There is both order and a reasoned structure. Making a fund allocation between the various securities requires an analysis of several variables and ultimately a judgment call.

In Barrons this weekend, the cover story recommends several dividend stocks including At & T and Verizon. To start the process of deciding what to buy and how much, and being focused on income, I first want to identify all of the income generating securities by type. I would want to know whether any of the bonds are contained in Trust Certificates which will frequently provide me with a better yield than a purchase of the underlying bond. For some companies, there may be a wide variety of securities, including equity preferred stock (floating rate and/or fixed coupon), trust preferred and junior bonds, senior bonds, and secured bonds.

For Verizon, the current yield on the common stock is about 6.3% at the current dividend rate and a price of $30.4. I would then check the dividend growth history for the last 10 years and the current pay out ratio. According to Value Line, which has different numbers than Morningstar (which I can not explain), the dividend was maintained at $1.54 from 1998 to 2005, when it was raised slightly to $1.62 and kept at that level for 2005 and 2006, and then gradually raised to $1.87 in 2009. I view this type of dividend history negatively, barely better than a fixed coupon bond. Over a 11 year period, the dividend increased about 21% or 2% per year. And the pay out ratio is relatively high for the past six years at over 60%. So even though Verizon has a good current yield, that is more of a function of the share price going down over the past decade, and showing few signs now of perking up. So, I have bought and sold the common twice this year for small profits, clipped a few dividends, and do not currently own it. I may at any point buy it back for a trade.

Verizon does have a senior bond as the underlying security in Trust Certificates, and I own both PJL and XFL. I probably needed to buy those two securities in the retirement account, and the common in the taxable account. Both of the TCs are in the taxable account, and I do not recall why. XFL was bought at around 19, and my yield is around 10.35% at my cost until the underlying bond matures in December 2030. I discussed these TCs in depth in one of my first posts, from October 8, 2008, when the prices were hovering in the $19 to $20 range: Trust Certificates PJL and XFL: Verizon Bond

Now, I want to know what the bonds yield. The senior bonds can not have their payments reduced or eliminated and are consequently more certain to be paid than a common dividend. I randomly picked some senior bonds from the Finra site. Until I moved to bonds maturing in 2023, I would have received less of a current yield with a Verizon bond than with the common stock. (the FINRA yield calculation is yield to maturity which would be lower than current yield at the last trade since many of these bonds trade at a premium to par value). By 2023, I could buy a bond with a greater yield, but not by much, somewhere around 6.75%. I only picked up about a .25% moving five years further out, and another .25% by moving all the way to 2031, where I could buy one with a current yield of 7.28% but I would lose money at maturity. I just did a random check and this is the list:

VZ. GX FINRA - Investor Information - Market Data - Bonds - Bond Detail

VZ.JL FINRA - Investor Information - Market Data - Bonds - Bond Detail

VZ.HW FINRA - Investor Information - Market Data - Bonds - Bond Detail

VZ.RQ FINRA - Investor Information - Market Data - Bonds - Bond Detail

VZ.RU FINRA - Investor Information - Market Data - Bonds - Bond Detail

One of the main benefits of a common stock over the bond is the increased dividends paid over time. I would much prefer buying a Sysco when it yielded 5%, and SYY has a contemporary history of doubling a dividend in seven years, than a Verizon which yields over 6% with a small rate of growth in its dividend payments. The SYY dividend has increased from 7 cents in 1993 to $ .92 in 2008, and has been increased in every year from 1993 according to the VL data. I would expect that the pace of dividend to slow down however. Another benefit of the common stock for a wealthy U.S. taxpayer is that it pays qualified dividends. The tax issue can be negated by holding the bond in a retirement account.

Is the Verizon dividend secure or how secure is it? This is a much harder question to answer. What would you have said in response to that question about GE or Bank of America three years ago? I would just try to identify potential problems and get a "feel". One problem is that Verizon is losing its land line customers at a rapid rate. The other problem is that its main engine for growth, Verizon Wireless, is owned 55 (VZ)/45(VOD) with Vodafone. Another problem is competition from cable and disrupters like Skype. Then you have the issue discussed in the recent cover story in Forbes, about new technology that reduces the cost of service for wireless calls and certain competitors intent on using that advantage to take away customers from the incumbent carriers. Forbes.com (my discussion at item # 9 /VZ & T-Forbes) So what can anyone say about the future? I suspect that the VZ dividend is not as safe as many think, probably safer in the short term than the long term, and most likely not a candidate for a dividend double in 10 years or even 15 years.

I am not going to buy any more Verizon bonds. But, if I had to make a choice between the common and a senior bond maturing in 2023 with a current yield of 6.75%, selling at no more than a minimal premium to par, I would go with the bond.

On the dividend front, AT & T common stock is currently yielding about 6.3% at the closing price of $26.07. Unlike Verizon, AT & T has shown decent dividend growth. It has been raised most years shown in the VL data which starts in 1993. Starting in 1998, the dividend was 94 cents and it was $1.64 in 2008, a 74% increase compared to the 21% for Verizon. The payout ratio is high currently, however, at over 70% (dividends to net profits). An important consideration for me is that AT & T owns 100% of its wireless network. I am price sensitive on my adds to AT & T with all of the buys betweem $23 and $25, and I went to nothing after selling all my shares, then in a retirement account, at close to $40 shortly before 9/2008. When I looked at a one decade chart, there seemed to be support in the $20 to $25 range: T Stock Charts So, I look at AT & T common more favorably than Verizon based on a few simple criteria: a similar dividend yield with AT & T having the better historical growth rate for the dividend and 100% ownership of its wireless network. The Iphone is just a minor point for me in its favor, and will most likely not be a lasting advantage for AT & T.

The Barron's article, on the other hand, has the Verizon common on its "A" team and AT & T on its "B" team. Since I sold my Verizon common recently, I only own Intel common on Barron's A list. I do not own Santander common and prefer owning its floating rate equity preferred that I bought at a good price a few weeks ago, STDPRB: Bought 100 STDPRB at $15.3/ At my cost, the guarantee is worth about 6.5% and I will receive more when 3 month LIBOR rises above 3.48% during the relevant computation period: www.sec.gov

I also recently sold PG, MSFT, and WMT, which are on Barron's lists, and maybe I need to call the broker and explain that the Old Geezer did that and maybe he deserves a mulligan or some kind of do over given his age and mental infirmities. I wonder whether they would understand, surely they would.

3. LB Wants to Defend Its Purchase of ZBPRC: LB is feeling unappreciated here at HQ, and can not help but notice that its buy of ZBPRC was given as one reason by Headknocker (HK) for its dismissal as Head Trader. HK said that he will allow LB some space to explain its rationale, provided LB uses no numbers, uses no more than 300 words, keeps it simple and avoids being too boring. RB just piped up that LB is too much of a nerd's nerd to comply, and HK then added another reason for dismissing the LB, allowing the RB to make a trade on its own. As readers may remember, LB was so grateful at having another chance as HT that it allowed the RB to make a decision, and RB bought Yahoo. Bought 100 Yahoo at Open HK reminded all traders that the RB is not allowed to make any decisions in such an unhindered manner, and certainly nothing resembling a decision involving deployment of HK's capital.

LB's defense: As long as Zions is not seized by the FDIC, it will have to pay the ZBPRC dividend for as long as it continues to pay the common dividend. If the common is eliminated then ZIONS would have to restart the preferred dividend when it reinstates the common and the common shareholders expect a dividend. Zions would not defer paying the government its dividend unless it was in dire straights which it would have to do if it eliminated the ZBPRC dividend. If conditions improve, ZBPRC may be called after 9/2013 due to its high coupon of 9.5%. And the yield is tax advantaged at close to 13% at HK's cost. Morningstar rates the common five stars and says that the average loan to value ratios for the construction an land development loans is around 60%, so that provides some leeway before Zions takes a hit.

HK thanked the LB for not being too boring. If the investment makes HK money, all will be forgiven, all is well that ends well. On the other hand, if HK loses money, then this particular rationale given for LB's dismissal will be put in large red letters. Heads I win, HK purred, and tails you lose LB. RB just marveled at the wisdom of Solomon expressed by the GL.

GATEWAY POST: Main Table of Contents

The best way to search this blog is with the google search box on the right hand side, underneath the FeedJit Map, rather than the search box in the top left hand corner.

Being a prolific and wordy writer, this blog has expanded in a short time to almost a 1000 posts, mostly long ones. Consequently, the best way to find specific information in this blog now is to use the Google search box on the right hand side underneath the FeedJit Widget.

I would recommend that anyone interested in Trust Preferred, Trust Certificates or other exchange traded bonds register at the free site QuantumOnline.com.

That site has links to the prospectuses and has other helpful information including credit ratings and the preferred stocks that pay qualified dividends under current U.S. tax law. This site also has several pages of the preferred stocks that pay qualified dividends.QuantumOnline.com

Anyone interested in Bonds needs to become familiar with the free FINRA site. FINRA

To find information about a firm's bonds, just enter the stock symbol, click go, then scroll to bond in the "search box", and then you will be on the bond page for that company. This site only works properly with Internet Explorer. You can also search for each bond the trades by customized dates at the bottom of each page.

Some links in this post may cease to work with the passage of time.

READERS OF OLDER POSTS HAVE TO ASSUME THAT THE DATA MENTIONED IN SUCH POSTS WAS CURRENT ONLY AT THE TIME SUCH POST WAS WRITTEN, AND THE READER NEEDS TO CHECK FOR MORE RECENT INFORMATION.

For any news readers, RB stands for my Right Brain and LB for my Left Brain.

ANDY HALL and The Infamous Stringdusters: Andy HALL SINGING LIVE: YOUTUBE VIDEO LINKS

VIX ASSET ALLOCATION MODEL:USING THE VIX MODEL AS A TIMING INDICATOR FOR LONGER TERM STOCK ALLOCATIONS

DYNAMIC ASSET ALLOCATION:Time for a Paradigm Shift in Asset Allocation Theory: Need Dynamism, Better Assessment of All Forms of Risk, and Due Regard to Volatility Patterns

ING PREFERRED (Hybrid Securities):ING Preferred Stocks: Links in one Post

FLOATING RATE SECURITIES:Floaters: Links in One Post

HERTZ BONDSHertz Bond Information in One Post

TRUST CERTIFICATES: Trust Certificate Links in One Post

REVISED 5/17/2009 TO GROUP LINKS INTO TOPICS

Trust Preferred: Trust Preferred Securities: Links in One Post

Stocks for the Long Run and Professor Siegel: To Professor Siegel: Time for a Re-Think

Using Volatility as a Risk Management Tool for Equity Preferred Stocks: Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock

FINRA Links to Underlying Bonds In Trust Certificates: LINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES

REVISED 6/3/09 To add more comments about comparing prices of underlying bond with TC price.

THE FINRA SITES ONLY WORKS PROPERLY WITH INTERNET EXPLORER. I HAVE TO FIRE UP MY WINDOWS COMPUTER TO USE IT.

EXCHANGE TRADED BONDS: Exchange Traded Bonds:

STOCK DISCUSSION LINKS IN ONE POST: Stock Discussion Links in One Post

Lottery Tickets: LOTTERY TICKET PURCHASES: LINKS IN ONE POST

BOND ETFs: Bond ETFs: Links in One Post

Failures of Target Funds: More on Failures of Standard Asset Allocation Models and Target Funds/Use of Volatility in an Asset Class to Make Adjustments to an Asset Allocation

REIT CUMULATIVE PREFERRED ISSUES: REIT CUMULATIVE PREFERRED LINKS IN ONE POST

Bought DFY at 22.48/Added to BIP/More Silliness from Ideologues/Sold CEF FAX

1. Bought 50 of DFY at $22.48 Yesterday in the ROTH (see Disclaimer): Recently, I have sold two stock mutual funds in the Roth, both were included in a Roth conversion from the regular IRA in October 2008. It will take some time but I intend to buy bonds with the proceeds. Yesterday, as my last trade for the day, I bought 50 DFY at $22.48, an exchange traded senior bond issue from Delphi Financial Group maturing in 2033. The coupon is 8%, paid quarterly, and the par value is $25. The Quantum site shows that it is an investment grade bond. The current yield at my cost is around 8.9%. DFY Stock Quote - Delphi Finl Group Inc NT SR 8% 2033 This is a link to the prospectus: e424b5 I previously bought a junior bond issue from Delphi and discussed this insurance firm in that post: Bought 100 DFP at $17.1 I also discussed the last earnings report in this post: Delphi

Shortly after that purchase of the junior bond DFP, it went ex interest and has risen some in price. The payment dates for distributions for both DFP and DFY are the same, in February, May, August and November. Quarterly pay dates for a bond are preferred here at HQ to semi-annual payments, the sooner the better is our philosophy. Part of the investment approach is to invest the dividend and interest stream into more securities that pay dividends and interest, so the compounding effect works better with an increased frequency of distributions. No funds have ever been withdrawn from the brokerage accounts except to move to another brokerage account, and no funds have been added by me since 1984.

I had no trouble in filling my odd lot order for DFY. The spread between bid and ask was unusually narrow. My market order was filled at the ask price. On two prior occasions during the past week or so, I entered a market order to buy 50 of this security, and nothing happened for a minute so I cancelled the orders.

Today, DFY is experiencing extremely heavy trading. Volume is normally less than 10 thousand and today it has already traded 350,000 before noon. I did not see any recent news on DFG but the common is trading down over 2%.

2. Marsha-My Congressional Representative/Gerrymandering to Defeat the Goals of the Democratic Process: My congressional district was designed by the state legislature for the exclusive purpose of frustrating the proper functioning of a democratic system. The evident purpose for all gerrymandering was to insure that incumbents would rarely face a serious challenge. So the SUV capital, a suburb just outside of Nashville, was combined with SUV Capital II Germantown, a suburb of Memphis two hundred or so miles away, and then bypassing Nashville the district moves north to capture Clarksville, near the Kentucky border just across from the Ft. Campbell military base. A few republican precincts ware picked up in Franklin as the district snakes its way through mostly deserted farmland to pick up Germantown. In other words a monstrosity clearly designed to insure that a GOP candidate would always win no matter what. Brentwood was taken out of Democrat's district so both parties receive benefits from the gerrymandering. The Democrat was almost defeated as the votes from the SUV Capital almost overwhelmed his traditional Democrat precincts. Item # 4 LIBOR AND THE AEGON FLOATING RATE PREFERRED STOCK True Believers Gather in Washington Marsha In that last linked post, I discussed my opinion, which I view as 100% certain, that Marsha and her GOP colleagues would have allowed the world to sink into a worldwide depression last September if they had been in charge. Their proposals would have guaranteed a financial system collapse in September 2008, and manifested a profound ignorance about what was happening.

This kind of gerrymandering occurs throughout the U.S. for the express purpose of defeating the democratic ideals embodied in voting and creates a form of extremism in both parties, making it more difficult for moderates to have any voice at all. Marsha is what I would call a southern version of Michele Bachmann from Minnesota, except possibly more prone to simplicity, ignorance, and erroneous statements. Michele Bachmann: Sarah's Soul Sister

It is hard to escape Marsha's inane politico speechifying. I was trying to eat dinner last night at a local meat and three, and as you would expect Fox News was the only television station allowed to be broadcast here in the SUV Capital of the World. CNN is viewed as subversive, watched by communists and liberals. And there she was, along with her soul sister Michele, making some claim that an independent panel's "recommendations" about breast panel screening was the precursor of what can be expected from government managed health care, a form of rationing, the death panels extraordinaire. ajc.com

Now, this is just painfully inaccurate and deliberately misleading, and I would expect nothing less of Marsha and Michele. Medicare is by the way a government run health care program and no changes were made or contemplated in Medicare or Medicaid coverage. I did read the report which contained the recommendations: Screening for Breast Cancer: Recommendation Statement This panel does not set federal policy (Secretary Sebelius Statement on New Breast Cancer Recommendations). The panel consists of doctors who are non-partisan. NYT Their report does contain information which may interest women over the age of 40 who want to make informed decisions. Informed decisions based on accurate information is not what the TBs want to see.

I found these statements in the recommendations:

"The USPSTF recognizes that clinical or policy decisions involve more considerations than this body of evidence alone. Clinicians and policymakers should understand the evidence but individualize decision making to the specific patient or situation."

"[t]he decision to start regular, biennial screening mammography before the age of 50 years should be an individual one and take into account patient context, including the patient’s values regarding specific benefits and harms. (Grade C recommendation)"

Then Fred Barnes started to talk on the Fox show, saying something like this is what the federal government wants to do, ration health care, and that is what Sarah Palin was talking about when she discussed "death panels", a false characterization since Palin was referring to an earlier version of a the health "reform" bill that would have allowed doctors to bill medicare for giving counsel to their patients who wanted it about durable powers of attorney for health care which involves many types of issues, granting someone the power to make health care decisions when you are unable to do so or whether or not you would want to continue life on artificial life support (the Terri Schiavo kind of issue that everyone needs to make) NYTimes.com It was just a pathetic mind-bending distortion by Palin which is what I expect from her, either patently ignorant or a deliberate distortion. Once this type of silliness starts to gain momentum with the tens of millions of TBs in the U.S, the likely spreaders of the disinformation in the media would include Glen Beck, Sean Hannity and Rush Limbaugh, who echoed the death panel/ breast screening nonsense. Beck Limbaugh It is really impossible to have an intelligent conversation with a TB.

Now, I view myself as a True Conservative and the foregoing characters as something else entirely. Readers of this column know that I oppose the health "reform" bills that the Democrats have proposed including the one passed by the House which I would have voted against, based on my views of its likely cost and the current fiscal situation of our government.

Both of my parents are alive, and I have had a great deal of first hand experience on what Medicare and their supplemental Blue Cross insurance policies will cover. The bottom line is virtually everything. There are some coverage limitations and restrictions. For example, my mother who is 86 has a host of problems with her feet. Except for an occasional shot of cortisone, nothing that her foot doctor does for her is covered. But the outcry about the recommendations of the independent panel does raise some long term issues about the desire of American's to receive whatever medical benefits they want as some kind of fundamental constitutional right, regardless of the ability to pay for those benefits or the large and growing hole in the nation's balance sheet. This issue was discussed in a front page article in today's NYT written by Kevin Sack.

3. SOLD All Shares in CEF FAX Yesterday at $6.52 (See Disclaimer): This CEF contains Australian government and corporate bonds. I discussed it in some detail in a blog from October last year when it was selling at a 29% discount to NAV. Some Nibbles Got Filled: JZE, PJS, INZ and FAX As of yesterday, the discount had narrowed to just a tad over 2% www.funddata.com/abpdf/1253.pdf This is an example of what I try to accomplish with CEF purchases. When a CEF is bought at a substantial discount to par value, it is possible to make money by a narrowing of that discount. In addition, I was paid a good monthly dividend in cash, and the NAV rose for FAX between October 2008 to now. Since this holding accomplished all of its objectives to a far greater extent than hoped for at the time of purchase, it was sold yesterday. I am also concerned that the Australian dollar has risen too far too fast which recently caused me to sell my currency ETF for the Australian dollar. Sold FXA I currently own both the Canadian dollar and the Norwegian Krone.

This finishes my discussion of yesterday's trades.

4. Taming the RB Animal Spirit: Not much as been heard from the RB since it was allowed to buy 100 shares of Yahoo. Maybe the LB has finally squashed it having force fed the RB this article from Seeking Alpha.

Reuters had a downbeat article today that budget shortfalls in the states may threaten "millions" of jobs.

5. Added 50 shares to BIP at $15.75 (see disclaimer): Somewhere along the line, OG acquired some shares of Brookfied Infrastructure Partners (BIP), a publicly traded partnership at some point during the troubles last year, probably bought with cash flow received that day. The OG's memory, which is for all practical purposes a hollow shell, is that the distributions paid by BIP were treated as a return of capital, which reduces the tax cost basis in the partnership units owned but are not taxed currently. This appears to be the situation when I reviewed information at the BIP web site: Tax Information | Brookfield Infrastructure Partners A summary of its current infrastructure holdings can be found at this page: Current Operations | Brookfield Infrastructure Partners One new operation that was just acquired is described in the following press release filed with the SEC and involves the recapitalization of Babcock and Brown Infrastructure (ASX:BBI) which has now been renamed Prime Infrastructure. Press Release BIP's operations are more fully describe in its 20-F filing with the SEC, which is the annual report designation for foreign companies: Form 20-F (see pages 33 to 34) The yield at a total cost of $15.75 is around 6.73%. Dividends are paid quarterly with the next ex date on 11/25.

6. Utility ETFs: Yesterday I discussed buying XLU, the Spider ETF that contains the electric and gas utility stocks that are members of the S & P 500. Bought 100 XLU/Bought 100 QAI/SOLD AUY Since the list is limited just to S & P 500 components, the list has just 35 names in it. Composition - Select Sector SPDRs The top five companies account for a tad over 34% of the weighting. Vanguard has a broader ETF for Utilities, VPU, that has 88 firms. This ETF includes the small and mid cap names and has an expense ratio of .25% Vanguard - Fund Holdings Ishares has a sector Utility funds for the U.S. (IDU), similar to the Vanguard ETF, but at a higher cost. The expense ratio is .48%, and odd lots are permitted. One that I might add at some point to achieve further diversity is Ishares Global Utilities Sector Index fund. (JXI) This one would include the larger U.S. utilities as well as the big caps from overseas like E.ON, RWE and Iberdrola. This ETF has 77 holdings and an expense ratio of .48%.

This is a link to SSSA's International Utility ETF SPDR S&P International Utilities Sector ETF The volume is too light on this one, and the bid/ask spread is too large. XLU rarely has more than 1 cent spread and always a lot of volume. Wisdomtree also has an international only utility fund with an expense ratio of .58% that has more trading than the SSSA product. WisdomTree - WisdomTree International Utilities Sector Fund (DBU)

Bought 100 XLU/Bought 100 QAI/SOLD AUY/Unemployment and Inflation/Bought 30 ZBPRC at 18.4/

1. Unemployment and Inflation: A rise in inflation and unemployment can occur at the same time and are not per se mutually exclusive. This is a link to the BLS unemployment rate numbers from 1948 through 2008: Bureau of Labor Statistics Data This is a link to a graph chart of the misery index broken down month by month: The United States Misery Index By Month The misery index was higher in 1982 than now, and 1982 marked the start of a long term secular bull market. The difference is that both unemployment and CPI were high in 1982. The chart shows that rising unemployment can occur with rising inflation as shown by the twelve year period starting in 1970. By 1982, inflation was running hot and unemployment rate was at times higher than now.

Unemployment may serve to restrain inflation in the months to come. I would not anticipate now inflation to be a problem in 2010, and the market is certainly not anticipating a serious problem based on the pricing of longer term bonds and the TIP break-even point. The market is composed of fallible individuals who lack the god like power to divine the future with any degree of accuracy. Being one of the lowly human creatures, I can only say that I would expect inflation to run between 2 to 2.5% in 2010. The inflation problem will probably not occur all at once, but creep up slowly, set in motion by forces that are not fully understood by anyone including Uncle Ben and Alan Greenspan.

I would not expect worrisome inflation to appear all at once. It is more like a slow burn, waiting for more fuel to feed it before it starts to roar. It might take several years for a 1970s type inflation scenario to develop again.

I mentioned in a comment to a post ( Bought 50 of the TP KEYPRB) that the next buying opportunity for long term bonds might come near the end of 1970s style inflationary cycle. That cycle had its origin in the policies of the 1960s, gathered steam in the 1970s and finally was squashed in 1979 to 1983 by the Fed Chairman Paul Volcker. It would have been premature, to say the least, to have bought those long bonds prior to say 1981 when both the 20 and 30 year treasury bonds jumped to over 14% yields www.federalreserve.gov/ This would be a buying opportunity totally unlike the one presented in October 2008 to early March 2009 in corporate bonds. In the last buying opportunity, the opportunity was confined to a relatively narrow period of time, when the problem was not inflation but a fear of financial collapse. That collapse was either going to happen or it would not happen, probably in a relatively brief period of time. It would have happened if the GOP had had enough votes in Congress in September 2008. If the next buying opportunity comes due a repeat of the 1970s, a concern expressed recently by the President of the Philadelphia Federal Reserve, then the first reaction would be to pare long bond positions and then wait a very long time for the buying opportunity. There is such an animal as a long term secular bear market in bonds. If you are in one, you will know when the opportunity has finally arrived in your gut because there will be blood in the streets in bond land and it would take a lot of nerve ( and I really mean more than a lot) just to hit that buy button.

2. Bought 100 shares of a new ETF QAI at 27.45 Today (see Disclaimer): This is a relatively high cost ETF called the IQ Hedge Multi-Strategy Tracker ETF: IQ Hedge Multi-Strategy Tracker ETF The high expense ratio is caused by layering the expense ratio of the sponsor on top of the expenses of the underlying ETFs selected by the sponsor. The ETF seeks to track before expenses the returns of the IQ ALPHA Hedge Index, which attempts to duplicate the risk adjusted return characteristics of hedge funds. As of 9/30/2009, this ETF contained the following:

Long Exposure

Ticker Name Weight

SHY ISHARES BARCLAYS 1-3 YEAR TR 24.48%

EEM ISHARES MSCI EMERGING MKT IN 24.42%

DBV POWERSHARES DB G10 CURRENCY 10.09%

AGG ISHARES BARCLAYS AGGREGATE 9.54%

VWO VANGUARD EMERGING MARKETS ETF 9.30%

BSV VANGUARD SHORT-TERM BOND ETF 8.08%

HYG ISHARES IBOXX $ HIGH YIELD COR 6.76%

SHV ISHARES BARCLAYS SHORT TREAS 6.19%

Short Exposure Ticker Name Weight

TFSZ9 RUSSELL 2000 FUTURES-10.31%

MCIZ9 MSCI EAFE FUTURES-8.41%

This data can be found at http://www.indexiq.com/docs/qai/factsheet.pdf. Right now, the ETF is heavy into short term bond exposure with the ETFs SHV, BSV and SHY.

So, I am just giving this ETF a test drive. I would assume the ETF will be actively managed on allocations and it appears to be at least on a quarterly basis: IQ ALPHA Hedge Index

3. Intel (owned): Bank of America/Merrill reduced its recommendation on a number of semiconductor stocks today, cutting Intel, TXN, LSI and MRVL to neutral from buy, and reduced several others from neutral to underweight. An article in Reuters contains a more detailed discussion of the reasons for the downgrades. I am content to hold onto Intel and to continue reinvesting the generous dividends to buy additional shares. So a price decline is fine with me since I will end up buying more shares at a lower price.

4. Bought 100 of the ETF XLU at $29.14 Today (see Disclaimer) & Bill Gross on Utilities : I do own a number of electric, gas and phone utility common stocks, and a few bonds and preferred stocks issued by those type of companies. To achieve a greater level of diversity, I bought 100 shares of the ETF for the S & P 500 utility stocks: Snapshot - Select Sector SPDRs This ETF contains 35 electric and gas utility stocks: Composition - Select Sector SPDRs Of the ones listed, I own common shares in Duke, Pinnacle, Consolidated Edison, Progress Energy, & Pepco. I also own GXP, based in Kansas, which is not part of the S & P 500, but is a component of the S & P 400. As with the other Select Sector Spiders, XLU has a low expense ratio at .21%: www.sectorspdr.com/shared/pdf/factsheets/FactSheet_XLU.pdf At my cost the dividend yield is currently around 4.2%: XLU Fund Quote - SPDR Utilities Select Sector ETF

I have been thinking of adding XLU to achieve more diversity, and I am an addict to diversity. It is better than being an addict to other things. I do not drink or smoke for example. What caused me to move off the fence today was the monthly newsletter from Bill Gross who made the case for owning utilities in what he describes as the new normal. This discussion is in his December 2009 Investment Outlook: PIMCO - Dec Gross Anything but .01%

Bill and I am concerned about bubbles being created with a prolonged period of zero rates on short term money.

I bought XLU in a new brokerage account at a firm that I previously had only an online savings account. Back in October, I bought some CDs from this bank, which was very easy to do online, and my yields were between 3.75% to 4.5%, with the terms expiring at 9, 12, 18 and 24 months. Those were bought in reaction to the 3 month Treasury bill rate falling last October to very unattractive levels, so I redeemed those at maturity and bought the higher yielding bank CDs. CPI and CPI Floaters-OSM/CDs v Treasury Bills in Dynamic Asset Allocation/ Numb to bad news CD rates falling Trust Certificates PJL and XFL: Verizon Bond(1st paragraph of that original post)

Some of those CDs have matured and the new rates were not enticing enough to me. So after the bank offered a $50 bonus for opening a brokerage account, I opened one and used some of the cash sitting in savings to make the XLU buy earlier today. The savings account pays interest that is okay in the current environment of artificially low and abnormal short rates, somewhere around 1.35% currently. The bigger cash problem is in the money market accounts where the rate is as Bill Gross notes hovering at or just above zero. Fifty bucks is a lot of money to the LB who picked a penny off the pavement at Kroger's today.

5. Mortgage Bankers Report: The Mortgage Bankers Association ( MBA) reported today that 14% of homeowners with mortgages were behind on their payments or in foreclosure. The last survey by the Census Bureau estimated that the number of housing units in the U.S. without a mortgage stood at 23,875,803United States - Financial Characteristics for Housing Units Without a Mortgage The number with mortgages was estimated at 51,487,282: United States - Financial Characteristics for Housing Units With a Mortgage This is an interesting interactive map showing the percentage by state of homeowners who are spending more than 30% of their income on monthly owner costs. You can check the numbers by zip code or even by street which is a little scary. Look at how high the numbers are for California, Nevada and Florida in this table from the Census Bureau, three of the epicenter states for the mortgage meltdown: United States by States; and Puerto Rico - GCT2513. Percent of Mortgaged Owners Spending 30 Percent or More of Household Income on Selected Monthly Owner Costs
Universe: Owner-occupied housing units with a mortgage

6. Leading Economic Indicators: The Conference Board reported that its index of leading economic indicators rose .3% in October.

7. OSM (OWNED): I noticed this afternoon that OSM declared its interest payment at $.0106 for December. This would be $.1272 annualized or a tad over .005%. As I have discussed, this security pays interest monthly based on a 2% float over a CPI computation that covers a one year period with a lag, and I expect several more months of low penny rates due to the negative CPI readings late last year. I also have concerns about Sallie Mae surviving to pay par value in March 2017. If SLM does survive, the return would be excellent based just on the share profit. This is how I believe SLM calculated the December payment for OSM:

NSA CPI AUGUST 2009 215.834

NSA CPI AUGUST 2008 219.086

DIFFERENCE= -3.252

DIViDED BY 219.086= -.014843

ADD THE SPREAD= +.005156

Voila a 1/2 of 1% annualized

The rate will change every month, and the data is available now to do the calculation as far out as the period ending on 2/15/2010:

The following is my calculation for February 15, 2010 which still has the low 2008 CPI numbers due to the lag imbedded in the OSM computation:

NSA CPI October 2009: 216.177

NSA CPI October 2008: 216.573

Difference= -.396

Divided by 216.573= -0018

Add the spread .02%= .01817%

So by February, even with the negative number from last October the monthly interest starts to turn more positive. But just for fun, and the LB considers this to be a form of fun for it, I will assume that the CPI readings for both November and December 2009 are unchanged from the level of October 2009 at 216.177 and see what effect that would have on the penny rate for April 15th 2010:

December Hypothetical NSA CPI of 216.177

NSA CPI December 2008: 210.228

difference: + 5.949

Divided by 210.228=.028297 + .02 spread=.048297% based on an assumption of flat CPI numbers for the next two months. This would be for the April 2010 payment. At a $12.5 total cost for the shares, that would be worth twice as much.

The RB said that, if it has to sit through another one of these calculations, it will go on strike and never come back to work. This is worse that when the LB reads the Internal Revenue Code for its own amusement.

8. Bought 30 shares of ZBPRC at $18.4 (see Disclaimer): I do not have a positive opinion of Zions Bancorporation. It would be hard to justify to me the decision to bankroll the obvious bubble in real estate in the Arizona and Nevada markets. I thought that the 3rd quarter report was horrible. In fact, I sold the 30 shares of ZBPRC held in the regular IRA immediately after its release in October Sold ZBPRC/Hedging Bond Positions Since that report, ZBPRC has fallen about 3 bucks from where I sold those 30 shares, and I view the decline as rational. I did not buy the 30 shares back in the retirement account since it has become too speculative for the IRAs. I view it as extremely speculative.

This security is a non-cumulative perpetual equity preferred stock which are three good reasons to be cautious. I found the yield too tempting today to completely ignore it however. The coupon on this security is 9.5% with a $25 par value: Prospectus Supplement It can not be redeemed prior to 9/15/2013. Assuming Zions survives and is able to recover by 2013, this high coupon security might be a candidate for a call at par value, assuming also that interest rates are sufficiently low for Zions that it could refinance at a significantly lower rate. Quantum does list the dividend as qualified: 15% Tax Rate Table Yesterday, I noticed that Zions declared the regular dividends on both of its equity preferred stocks. I own both of them now, with the buy of ZBPRA made in May at $7.8. Bought 100 ZBPRA at $7.8/ As long as Zions keeps paying that 1 cent common share dividend I have to be paid. If it eliminates that dividend, it will have to suspend the government's preferred dividend in order to eliminate the dividends on ZBPRA and ZBPRC. (see item # 7 Bought 50 ZBPRB in Roth at $19.9) As a practical matter, I would anticipate that an elimination of a 1 cent common share dividend to show extreme distress, and Zions management would have to know that would be the perception. So if they eliminated that one cent, I believe that the announcement of such an elimination would be accompanied by a notice of deferral for both the government's preferred dividend and the interest on junior bonds and the elimination of the equity preferred dividends. In other words, a very bad situation would be the diagnosis. And that is the risk.

The yield at a total cost of $18.4 is about 12.9%- ZB.PRC Stock Quote

9. SOLD 100 Yamana Gold (AUY) at 14.20 Canadian Dollars (see Disclaimer): I prefer to own gold bullion to owning a gold miner. I also wanted to increase my holding in Canadian dollars. So I sold my remaining shares in AUY and settled the trade in the Canadian currency. The hedge that I recently bought for my gold holdings, the double short ETF GLL, is not much of a hedge considering what I own, so I have decided to increase it in increments to make it somewhat more meaningful. I will buy 50 shares on a decline to 8.60 to 9 range, and another 50 on a decline to 7.60 to 8. I will continue to use it as a hedge for as long as the price remains over $6, modifying some my earlier downside limit which had been $7. I am just not comfortable with gold at the current levels. I wish that I could sell some but that is not going to happen. I always view paring to be the best hedge. But I will not even go into the bank for fear that I may pull some out to sell. So I have to deal with the LB psychology and that explains the GLL buy: Bought 50 GLL Also I share the view that the Canadian Dollar is a commodity currency, most likely to rise in a bull market for natural resource commodities, and it has already enjoyed a good run since March against the dollar as shown by the chart for the currency ETF, FXC .

I will just use my Canadian dollars to buy Canadian stocks on the Toronto exchange. Someday, I may convert it back to U.S. dollars if that makes a lot of sense. For now I have about 10 grand in foreign currency sitting around doing nothing and earning nothing in my main taxable account. It does fluctuate up and down in value.