Friday, February 17, 2012

SOLD 50 HBAPRG at $20.64/Sold 1 Commercial Metals 6.5% Senior Bond Maturing 7/15/2017 at 99.516/Bought 1 Quicksilver Resources 9.125% Senior Bond Maturing 8/15/2019 at 99/

Yahoo Finance has updated its Key Statistics page for Exide Technologies with information through 12/31/11. This information provides useful information for the selection of Lottery Tickets, and I currently own 70 shares of XIDE as a LT. The price to sales ratio is .07; price to book is .53; and the forward P/E for the F/Y ending 3/2013 is 4.27. I would not place much reliance on the consensus earnings estimate since this company had badly missed in its recent quarterly reports and refuses to give guidance for the foreseeable future.

I do not discuss earnings from companies in the LT category, unless I also own the bond. Two LTs released earnings yesterday, and I briefly reviewed the reports:

Huntsman: SEC Filed Press Release
Par Technology: PAR Technology 

Huntsman rose 7.7% yesterday in response to its release, closing at $13.99. Bought 30 HUN @ 9.91 and 30 FCE/A at 11.58 (1/1/12 Post)

Coca-Cola increased its quarterly dividend by 8.5% to 51 cents. This is the 50th consecutive annual dividend increase. I own 132+ shares as part of my Common Stock Dividend Growth Strategy. Buy of KO at 38.72 ADDED 50 KO AT 54.26 Bought 50 KO at 53.77

KO Long Term Unrealized Gain as of 2/16/2012
1. Bought 1 Quicksilver Resources 9.125% Senior Bond Maturing 8/15/2019 at 99 Last Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): This bond was bought as the replacement for the sold and discussed in Item # 2 below. I recently discussed KWK in connection with a 50 share purchase of its common stock. Bought 50 KWK at $5.3-LT Category (2/10/12). I do not have much to add to that discussion. Ultimately, I would anticipate that the success or failure of this investment will largely depend on KWK's emerging oil plays. 

Quicksilver Production Partners (QPP) recently filed a Form S-1 with the SEC. QPP was recently formed by KWK. 

If the IPO is successful, KWK is expected to be the largest unit holder in this publicly traded master limited partnership. KWK would be the general partner. KWK would contribute certain of its Barnett Shale assets to the partnership and will use net proceeds received by it from QPP to retire a portion of its debt. SEC Filed Press Release  

According to FINRA, this senior unsecured KWK bond is rated B2 by Moody's and B by S & P. FINRA 

Prospectus I did not have to pay the seller much in accrued interest, just $.51, since KWK just made the semi-annual payment.

My confirmation states that the current yield at my cost is 9.143% and the YTM is about the same at 9.162% since I bought the bond near its par value.

2. Sold 1 Commercial Metals 6.5% Senior Bond Maturing 7/15/2017 at 99.516 Last Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): I would view this Commercial Metals bond to be "more safe" than the Quicksilver bond, an opinion based in part on the difference in yield.  In the current abnormally low interest rate environment, a two to three percent interest differential is significant. I would pay attention to the judgments made by bond investors as reflected in prices and yields. Those investors are clearly saying that the Quicksilver 2019 senior bond is more risky than the 6.5% Commercial Metals bond, though that conclusion is subject to change based on new information. A few months ago, the KWK 2019 bond was selling at a 10% premium to its par value. 

In the last analysis, I am not interested in a junk bond selling near par value with a 6.5% coupon and a 2017 maturity date.  As a matter of personal preference, I will accept the greater risk for more yield, and then control that risk by limiting my exposure to a nominal sum. I am also more interested in the totality of my cash flow than its individual components.   


3. Sold 50 HBAPRG at $20.64 Last Tuesday (see Disclaimer): I am trading the volatility of floating rate, non-cumulative equity preferred stocks issued by financial institutions. I have traded HBAPRG several times. The issuer is HSBC USA.  This security pays the greater of 4% or .75% above the 3 month Libor rate on a $25 par value. Advantages and Disadvantages of Equity Preferred Floating Rate Securities Floaters: Links in One Post
The 50 shares sold last Tuesday were bought at $16.8 (October 2011 Post).

2012 HBAPRG 50 Shares +$176.08




Posted by at 5:55 AM 0 comments

Thursday, February 16, 2012

JUNK BOND LADDER TABLE/Husky Energy/MPEL/Sold 50 CPP at $24.93/Bought Back 50 CSCO at $19.95/Bought 50 FCBC at $12.5

The NY FED reported yesterday that manufacturing activity expanded in NY with the general business conditions index rising to 19.5, the highest reading in over a year. Empire State Manufacturing Survey (overview)

Over the past several days, there have been a number of articles quoting knowledgeable sources that European politicians are fed up with the Greeks and do not trust Greek politicians. (e.g.  Bloomberg) That is understandable. After all, the entire crisis started when the Greek government admitted that it had lied about its deficits.

Given the loss already built into the Greek government bonds, I doubt that there would be a significant difference now between an orderly and disorderly default. I regard the current proposal for a 70% haircut to be an "orderly" default. The market would probably have a short term negative reaction to a disorderly default, but the long term economic impact would not be that different. And, there are some advantages in visiting upon the Greek government the consequences of irresponsibility and dishonesty.

Late yesterday, some were expressing cautious optimism that an accord could be reached soon on Greece's bailout.  WSJ

The FED released the minutes for its January 24-25, 2012 meeting: FRB: FOMC Minutes, January 24-25, 2012 The market reacted negatively since those minutes revealed a division on whether the Fed should launch QE3.

I was tempted to sell my Melco Entertainment shares, recently bought as a LT. Bought 30 MPEL AT $9.32 as LT I decided to wait after reading this article at TheStreet, authored apparently by a technician who claims that the stock is poised for a breakout move. Melco recently released better than expected earnings:  SEC Filed Press Release Melco rose 18 cents yesterday to close at $12. Melco Crown Entertainment Ltd. ADS  (MPEL)

The VIX rose 8.19% yesterday to close at 21.14. This could presage an even more substantial spike into the high 20s which would be associated with a market decline. The VIX closed at 17.1 on 2/3/12. ^VIX Historical Prices As a result of this recent spike, which started in earnest on 2/9/12, I have sold some recently purchased equity positions. If the VIX moves up strongly today, I will likely sell another one. The whipsaw movement in the VIX between 20 to 30, with temporary movement below 20 and above 30, is the defining characteristic of an Unstable Vix Pattern, Phase 1. Mark Hulbert and the Use of the VIX as a Timing Model

1. SOLD 50 of the TC CPP at $24.93 Last Thursday (see Disclaimer):  This security is a trust certificate (TC) containing a trust preferred (TP) security as its underlying security. I suspect that many investors who know of it are afraid to buy it because the underlying bond in that TP originates from Countrywide. I delve into the successor liability issue in an earlier post: Item # 1  Bought Back 50 CPP at $21.35. 


2012 CPP 50 Shares +$163.02

2011 CPP 50 Shares +$114.07
I have held this security long enough to receive only one semi-annual interest payment, the one paid on 12/15/11.

I would note that it makes slightly more sense for me to take a short term capital gain rather than to receive an interest payment. While both forms of income are taxed the same at the federal level, I do not have to pay a Tennessee income tax on stock profits, whereas I would have to pay a 6% state tax on the interest payment made by CPP. While that may not sound like much, it is a significant total amount for me at year end.

Snapshot of TC trades can be found at the end of Trust Certificates: New Gateway Post.

Merrill Lynch Depositor Inc. PfdPLUS 8.05% Trust Ctf. CCR-1 (CPP) rose 19 cents yesterday to close at $25, its par value.

2. Bought Back 50 CSCO at $19.95 (Large Cap Valuation Strategy)(see Disclaimer): I sold 50 shares shortly before the recent earnings release. I was sufficiently impressed with that report that I decided to buy back those shares.  Sold 50 CSCO at $20.4

Cisco Systems closed yesterday at $19.91. I am not likely to buy more than 50 more shares.

3. Bought 50 FCBC at $12.5 Last Monday (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): I jettisoned shares in First Community Bancshares  at a small profit last June: Sold 100 FCBC at 14.44 I discussed this bank when making my first purchase last April. Item # 2 Bought 100 FCBC at 13.89 As noted in that post, FCBC did participate in TARP and paid back the government in 2009 (page 11 2010 Annual Report)

This bank owns 56 branches in four states: Virginia, Tennessee, West Virginia and North Carolina. This may sound like a large geographic area, but the branches are not that far apart as one would imagine. The bank is headquarterd in Bluefield, Virginia, located in Western Virginia. Bluefield is near the border between Virginia and West Virginia and is close to western Tennessee and North Carolina. bluefield va - Google Maps

I decided to re-enter the position with just 50 shares after reviewing the latest earnings report. The stock just went ex dividend on 2/8/12. First Community Bancshares The bank is currently paying a 10 cent quarterly dividend which gives me about a 3.2% at a total cost of $12.5.

In the 4th quarter of 2011, the bank reported net income of $2.95 million or 17 cents per share, down from 27 cents in the 4th quarter of 2010. That is not as bad as it sounds. The bank reported only a $26,000 profit from securities sales in the 2011 4th quarter, compared to $4.248 Million in the 2010 4th quarter. So the 17 cents is more of a clean number from the bank's operations.

I found the following to be supportive of a new purchase. The 4th quarter efficiency ratio improved to 54.93%, compared to 64.82% in the 2010 4th quarter. The net interest margin increased to 3.93% from 3.78% in the year ago quarter. Tangible book value per share increased 13.66% from the year ago quarter to $11.4 per share.  As of 12/31/11, the total capital ratio was 18.15%; the tier 1 risk based capital ratio was 16.89%; the tier 1 leverage ratio was 11.5%; NPAs to total assets stood at 1.57%; and the coverage ratio was 94%.

This stock did poorly during the Near Depression period as the bank reported steep losses. The five year chart shows channel trading mostly between $25 to $35 until early 2009 when the price cratered to $8.25 fairly quickly. FCBC Stock Chart Since March 2009, the stock price has stabilized in an uninspiring way, moving mostly in a channel between $10 to $15.

First Community Bancshares closed yesterday at $12.04.

I may average down at below $11.5, thereby buying back all of the 100 shares previously sold.

4. Husky Energy (own: Canadian Dollar (CAD) Strategy): While I have traded Husky shares profitably in the past, my current position of 200 shares is slightly in the red.

200 Shares of HSE:CA
I will receive Husky's dividends in CADs after a 15% Canadian withholding tax. A reader recently asked me whether that tax reduced my return.  U.S. taxpayers can deduct or receive a credit for foreign income taxes. I.R.S. publication 514 discusses the issue. I do not own foreign securities in a retirement account. {for more information, see irs.gov 514.pdf or Publication 514 (2010), Foreign Tax Credit for Individuals} It is my understanding that no credit is available in that circumstance. (AARP Online Tax Assistance Frequently Asked Questions) I rely on TurboTax to do the calculation for me, and  have received for the most part a credit on my U.S. taxes for foreign taxes paid on dividends.

My general goal for all of my Canadian securities is to increase my CAD stash over time. I will invest only in securities that pay dividends and Husky has a quarterly dividend of 30 Canadian cents. In addition to the dividend, I hope to realize some profit on the shares, though I am in no hurry to do so. When I sell my Husky shares, I will sell them on the Toronto exchange and receive the proceeds in CADs.

I was neither pleased nor disappointed with Husky's 4th quarter results.  Husky Energy Increases Net Earnings 135% in 2011 as Production Grows 9% On an adjusted basis, the company reported adjusted earnings of 50 cents per share. I am interested in the progress being made in the Liwan Gas Project in the South China Sea, and the company claims "good progress" in bringing that field online for its first delivery in late 2013 or early 2014. The company also has an oil sands project called Sunrise that is continually to "process towards planned first production in 2014". Assuming those projects come to fruition, Husky may look a lot better in 2014 than now.  

Husky Energy (TOR: HSE) rose two cents in trading yesterday to close at 25.51 CADs. The shares available on the pink sheet exchange in the U.S., HUSKF, closed up 21.62 cents to close at $25.4962 USDs. (CAD/USD) The CAD rose slightly in value against the USD in trading yesterday.  At a total cost of 25.51 CADs, the dividend yield is approximately 4.7%.

5. JUNK BOND LADDER TABLE (Junk Bond Ladder Strategy): This is easily the riskiest strategy being followed at the present time. This strategy was initiated late in 2010 in response to the continuation of the Fed's Jihad Against the Savings Class. I anticipate several defaults and have already suffered three. I have liquidated my 1 General Maritime bond at a total loss. Realized Gains Junk Bond Ladder Strategy I also own two bonds issued by Eastman Kodak and 1 by American Airlines, both of whom have defaulted. I am keeping those bonds until I have a better idea of their recovery potential, but fully expect to take a substantial loss on them.

Since I am buying junk bonds at discounts to their par values, I have had and will continue to have realized gains resulting from redemptions by the issuer or sales by me. The goal is to break-even on the bonds over time, thereby capturing their much higher yields without diminution from trading losses. The estimated yield to worst for this bond ladder is currently 13.31%. It remains to be seen whether that goal can be achieved.

In addition to the defaults already experienced, I have considerable concerns about my 1 Reddy Ice, 3 Travelport, and 1 AGY Holdings. I would not average down on any of those bonds and would have preferred to have avoided them altogether. I am really disgusted with Travelport. Item # 3 Update on Travelport; Travelport Update on Secured Credit Facility

This is what my junk bond table looks like for those securities still making their interest payments:


Posted by at 5:41 AM 0 comments

Wednesday, February 15, 2012

Call Warrant Exercise for TC XKK/Sold AGNC at $30.14/Sold 1 Boyd Gaming 7.125% Senior Sub Bond Maturing 2/1/16 at 93.25

In 2002, Mitt Romney told a reporter that people "recognize that I'm not a partisan Republican, that I'm someone who is moderate, and my views are progressive".   CNN.com
Last Friday, in a speech to the extremist Conservative Political Action Committee, he told the audience that he was "severely conservative". I doubt that there was a single true conservative in the audience.

Santorum's views on contraception were given in an interview last October. A transcription of the relevant part of that interview can be found at  TIME.com, along with the video itself.   He is opposed to contraception by the way. His views on contraception start at 17:55 into the linked video.

Santorum also believes that a woman impregnated by a rapist must have the baby. He refers to it as a gift from God. Rick Santorum on abortion: A child conceived through rape should be accepted as a "gift from God" - YouTube


1. Call Warrant Exercised for the Trust Certificate XKK (see Disclaimer): The owner of the call warrant for this TC exercised its right to call it. Conditional Full Redemption of Corporate Backed Trust Certificates Goodyear Tire & Rubber Note-Backed Series 2001-34 Trust The call date is today. If the owner of that warrant pays par value plus accrued interest to the trustee, then this security will be called and the owner of the call warrant will take possession of the underlying bonds. Those bonds are senior Goodyear Tire bonds maturing in 2028, bearing a 7% coupon, while the TC XKK has a 8% coupon. Prospectus When the TC has a higher coupon than the underlying bond, it becomes even more lucrative for the call warrant owner to exercise its redemption right, as explained in Item # 7 More on Call Warrants and TCs. This would be true when the underlying bond is selling at a premium to its par value. The GT bond was selling at a small premium to its par value when the owner of the call warrant exercised its call right. FINRA 

The press release announcing this call refers to this redemption as conditional which is the correct description. XKK is redeemed only if the call warrant owner delivers the precise amount of funds to the trustee by the call date. This amount would be the $10 par value plus $.331111111 per TC in accrued interest-obviously very precise There is no obligation to do so, and sometimes the owner of that warrant has backed away and refused to deliver those funds. If that happens, then XKK will not be redeemed and will continue to trade. 

While I have traded this security profitably, my current position of 200 shares was bought near par value and I will take about a $13 loss on the shares. I could have sold the shares last Friday at $10.32 and would have made a profit on the shares. However, I would have received less money during it that way after paying a brokerage commission. I would have considered doing it if the gain was long term taxable at 15%, but those shares were acquired last April and the gain would have been taxed at my highest marginal tax rate with the interest payment taxed at the same rate.  

2. Sold 1 Boyd Gaming 7.125% Senior Subordinated Note Maturing 2/1/16 at 93.25 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer):  I decided to limit my exposure to Boyd to the 1 senior bond, which is higher in priority, that matures in 2018.  Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 That bond has done well since my purchase. I bought the 2016 subordinated bond at total cost of 89.5 back in December 2010. So I made a small profit on that 1 bond plus about 14 months in interest.

I also own BYD common shares in my Lottery Ticket strategy. 

3. Momentive Specialty Chemicals (own 1 senior Borden Chemicals: FINRA): Momentive announced preliminary results for the 4th quarter. Earning Pre-Release Q4 2011 The company expects to record sales of about $1.2B, similar to the 4th quarter of 2010 and to report operating income of $14 to 24 million. Segment EBITDA is estimated at $101M to $111M.  For the year, segment EBITDA is estimated at $630M to $640M. The company estimates that it ended 2011 with $710M in liquidity, of which $430 was cash and cash equivalents. Momentive will issue a more detailed report when it files its 10-K in early March.

4. Sold 35 AGNC at $30.14 Last Friday-ROTH IRA (see Disclaimer):  I was content to harvest several $1.4 per share quarterly dividends and to sell the shares for a profit.Mortgage REITs have a number of risks associated with them. The shares were bought at $29.29 back in February 2011. AGNC recently reduced its dividend to $1.25 per share.

American Capital Agency closed at $30.59 yesterday.

5. Tweaking ROTH IRA Investment Strategy: I am considering tweaking my strategy for the ROTH. Previously, my stock selections have been limited primarily to stock CEFs that pay good dividends and a few REITs. The focus has been on bonds and bond like investments.   I may add one or more blue chip stocks with a long history of raising dividends, and then reinvest  those dividends to buy more shares. The general approach would be to hold the investment until I have a 100% total return on my initial investment, though I may sell the shares when and if I sour on the company based on a rational assessment of future prospects.   
Posted by at 5:49 AM 0 comments

Tuesday, February 14, 2012

Sold 50 BMLPRJ at $18.9/Sold 50 VFH at $31.05/EXIDE Disappointment/Bought 100 of ZCN:CA at 16.85 CADs

Rick Santorum, one of the two likely GOP Presidential nominees, said recently that contraception is "a license to do things in a sexual realm that is counter to how things are supposed to be". usnews.com

When reviewing Santorum's book "It Takes a Family, a reviewer for the Philadelphia Inquirer commented that Santorum has "one of the finest minds for the thirteenth century". That is a bit harsh, more like an average mind for the 19 Century.

He believes that American liberals contributed to the Roman Catholic sexual abuse scandals. Fishers of Men

Santorum is also famous for his spirited defense of the Crusades, POLITICO.com, and his belief that climate change theory is a hoax perpetrated by the American left (i.e. anyone to the left of Lester Maddox) as "an excuse for more government control of your life". NYT The only American government likely to take more control over the average American's life is one headed by Santorum and his Theocrat colleagues of the American Taliban movement in Congress.

Santorum has stated that the U.S. should initiate a war with Iran by bombing their nuclear facilities. ABC He was of course an avid supporter of the Iraq War and even asserted that weapons of mass destruction had been found in Iraq, another example of reality creation common among members of his Tribe.  Rick Santorum - The War in Iraq I am not aware of how war mongering and Christianity, or at least his version of it, go hand in hand with the slaughter of actual human beings living outside the womb.

The latest Pew poll has Santorum ahead of Romney among likely Republican voters. Pew Research Center for the People and the Press  Bloomberg Obama beats both of them by about the same according to that poll.

In the U.S., there has always been powerful reactionary forces who have succeeded in falsely labeling themselves as conservatives. I roughly estimate that 25% to 30% of the adult population falls into that category. While Romney pretends to be a Conservative, or a moderate, or whatever he believes will help him in an election, Santorum is just another True Believer, a reactionary who falsely labels himself a conservative. By reactionary, I am referring to someone who wants to turn back the clock at least fifty years or as much as 150 on some issues. Anyone who believes otherwise is categorized as a "liberal" or worse.

Exelon (EXC), a recently added position, went ex dividend yesterday.

Moody's adjusted the ratings on 9 European sovereigns late yesterday.

S & P revised its outlook for Meritor to positive. TEXT: Reuters I own two Meritor bonds:  Bought 1 ArvinMeritor 10.625% Senior Bond Maturing on 3/15/2018 at 96  Bought 1 ArvinMeritor 8.125% Senior Bond Maturing 9/15/2015 at 93.5


1. Sold 50 BMLPRJ at $18.9 Last Thursday (see Disclaimer): I will trade the volatility of non-cumulative, floating rate equity preferred stocks. This security was bought a few days ago  at $16.8.

2012 BMLPRJ 50 Shares +$90.98
Snapshots of my trades can be found at the end of Advantages and Disadvantages of Equity Preferred Floating Rate Securities. I include AEB in this category of floating rate equity preferred stocks, even though it is cumulative and is in effect a junior bond. For a U.S. taxpayer, that European hybrid pays qualified dividends rather than interest, making it more similar to traditional equity preferred stocks than to bonds. Aegon Hybrids: Gateway Post

Bank of America Corp. Dep. Shs (Rep. 1/1200th interest of a share of Fltg Rate Non-Cum Pfd Series 4) (BML.PJ) closed at $19.35, up 51 cents for the day. It was ex dividend yesterday. I still own 100 shares.

2. Sold 50 VFH at $31.05 Last Thursday (see Disclaimer): I decided after a moment's reflection that I prefer to concentrate on individual regional bank stocks. This ETF is heavy into large financial institutions that have a host of problems flowing from their activities during the housing bubble years.  Since I bought this ETF in a Vanguard brokerage account, I did not pay any brokerage commission on either the buy or the sell. I bought the shares at $29.2. Bought 50 of the Stock ETF VFH at $29.2 (1/18/12 Post).

Vanguard Financials ETF closed at $30.98 yesterday.

3. Added 100 of the Canadian Stock ETF ZCN:CA at 16.85 CADs Last Thursday  (Canadian Dollar (CAD) Strategy)(see Disclaimer): This is a Canadian stock ETF traded on the Toronto exchange. I used my existing CAD stash to make the purchase. It is a  low cost ETF that owns 60 of the large Canadian companies.

For investors familiar with large Canadian companies, this ETF would be weighted in financial (33.4%) and natural resource stocks (energy & materials=49%). The expense ratio is .15%: BMO Dow Jones Canada Titans 60 Index ETF

I have a lot more confidence in the large Canadian banks than any large U.S. financial institution so often run by those that I charitably call Masters of Disaster, the highest paid and biggest doofuses in the history of civilization. 

This is a snapshot of the weightings as of 2/8/12, where the position is greater than 1% of total assets:

                                         

This recent article discusses many of the justifications for my Canadian Dollar Strategy.  MarketWatch

Barlcay's favors Canadian stocks, given that the Canadian economy looks stronger than the U.S. with lower unemployment. Barrons.com

BMO Dow Jones Canada Titans 60 closed on the Toronto exchange at 16.71 yesterday.

4. Exide Earnings & S & P Revises Credit Outlook to Negative (own common as TC and two senior secured bonds: FINRA): The consensus estimate for Exide's fiscal third quarter was for an E.P.S. of 24 cents on $848.47M in revenues. The company did not even come close. While the company reported a GAAP E.P.S. of 84 cents per diluted share for its third fiscal quarter, most of that was related to extraordinary tax related issues.  Net sales were reported at $784.051 million, badly missing the consensus estimate. Exide's CEO blamed Europe and the weather. Operating income for the 4th quarter was reported at $22.5M, down from $47.3M in the 2010 4th quarter. SEC Filed Press Release

While the company did not provide an E.P.S. figure without the tax items, I estimate that it would have been $.096 cents per diluted share ($68.215M in GAAP net income minus $60.313M in the tax benefit=$7.902M dividend by 81.61M diluted shares=$.096). I would add that I do not have any training any accounting and would not rely on that calculation myself. I expect the reporting company to provide me with that information. The author of an article found at Seeking Alpha claims that the number was 6 cents excluding extraordinary items. Whatever, either way, it was still a poor quarter.

More troubling that the earnings and revenue misses, the company is devouring cash. The company reported that it used $73.1 million in cash for the nine months ending 12/31/2011, compared to a cash generation of $22.9 in the comparable prior 9 month period. The CEO claims that the cash was needed to fund working capital, higher capital investment to fund additional AGM battery capacity and NAAQS regulatory compliance. The company believes that free cash flow will be positive in the current quarter. I am most concerned about this issue as an owner of Exide's senior secured bond.

Another troubling sign is that the market capitalization of the company is substantially less than Exide's debt. The market capitalization at a $3 share price is around $237M, while the long term debt was $755.648M as of 12/31/11. Form 10-Q Of that amount the senior secured note has an outstanding balance of $675M. I view that as a negative sign post.

The company also announced that it would not be giving earnings guidance for the foreseeable future and would expect its earnings for fiscal 2012 to be below its previous forecast, which is not surprising given the miss for its fiscal 2012 third quarter. The conference call, available at Exide's web site, lasted for 1:31:48, longer than most.

Looking at the compensation for the executives at this company,  I would suggest that all of them are in need of a minimum 50% cut, based on the performance of this company. Compensation packages among executives is way too generous given the poor performance of this company.  BusinessWeek calculates that the CEO James R. Bolch receives over $11 million in total compensation which is just absurdly ridiculous. I certainly intent to vote against their compensation levels when presented with the advisory vote.  Whenever I see compensation for this kind of performance anywhere near that number, I will vote "no" in the advisory vote regarding executive compensation.

On the first trading day after the earnings release, the stock was among the leading losers on Nasdaq, declining 24.06%, giving up most of the gains since I purchased 70 shares as a Lottery Ticket last December. Bought 70 XIDE as LT at $2.75 That kind of movement justifies the LT tag.  I am more concerned about the senior secured bond which fell about 7% in trading last Friday. At last Friday's closing price (79.187), that bond had about a 10.9% current yield and a 13.87% YTM.

Exide Technologies continued its abrupt decline based on the unsatisfactory earnings report, closing at $2.88 in trading yesterday.

Late yesterday, S & P revised the outlook on Exide's debt to negative. TEXT at Reuters According to S & P, there is a one in three chance "that Exide's credit metrics, free cash flow, and liquidity could drop below the levels that might lead to a downgrade". 
Posted by at 5:47 AM 3 comments

Monday, February 13, 2012

JFK's Rubber Duckies/Bought 1 R.R. Donnelley 8.875% Senior Bond Maturing 5/14/2021 at 92.69/Sold 50 CSCO at $20.4/Bought 100 MPW at $9.9-ROTH IRA

The TC PJA was ex interest for its semi-annual interest payment last Friday. I currently own 150 shares in a taxable account. Trust Certificates: New Gateway Post

The VIX surged last Friday, rising 11.65% to close at 20.8. It spent 16 days under 20.

The Greeks are upset and very angry that conditions are being place on their reckless consumption of other people's money. Yesterday, several buildings were burned, as 100,000 delusional Greeks protested the austerity measures later approved by their Parliament. The protest was as expected violent. Riots Continue NYT  WSJ Rioters Burn Buildings

Among other things, the Greeks are upset about 15,000 government jobs being cut when there are 750,000 full time government employees, including 10,000 priests on the public dole (CBS), and another 150,000 employed part time, in a nation with just 10.8 million people. (Demographics of Greece)

The government employees receive 14th months of salary per year. The extra two months are called bonuses. BBC News  IMF on Greece -- Frequently Asked Questions

Many of those job cuts, assuming that they actually occur, will probably involve those close to retirement. The generous benefits and salaries of Greece's government employees have in large part been paid for by international creditors who are going to take a bath on money lent to Greece. Tax evasion in Greece is widespread, where tax collectors are fired for actually collecting taxes as reported by Michael Lewis. The politicians gave the people what they wanted and the Greeks did not want to come close to paying for it themselves. They will not look in the mirror and blame themselves. It will always be someone else's fault. Private creditors are expected to take a 70% haircut on the face value of their loans. Maybe it is their fault for refusing to take a 100% haircut and then lend more without a whimper.

Only a fool would loan the Greek government money.

The latest revelation of JFK's infdelity comes from Mimi Alford, an intern, who allegedly carried on an affair with JFK for 18 months, losing her virginity to the President while Jackie was away. Personally, I was more concerned about her revelation that JFK had a collection of rubber duckies and would play with them in a bathtub. 'We had races with rubber ducks in the bathtub' Maybe if Nikita knew about JFK's rubber duckies, he would not have backed down during the Cuban Missile Crisis. I would not tell anyone about my collection of rubber duckies.

Members of the Tea Party will complain about government spending but will frequently be feeding at the governments trough in a variety of ways. I would be tempted to call that hypocrisy. The reality is that many of them lack the necessary information about their dependence on government programs and benefits. The NYT published an article in yesterday's paper on this subject. One common misconception is that the medicare premiums cover the cost of Medicare. Possibly, the member of the Tea Party will get their wish when the GOP has enough votes to adopt their Medicare plan, turning it into a voucher system likely to bankrupt most of middle class within a few years after retirement. Item # 1 GOP's Plan To Bankrupt the Middle Class

1. Bought 1 RR Donnelley 8.875% Senior Bond Maturing on 4/15/2021 at 92.69 Last Wednesday-Satellite Brokerage Account (Junk Bond Ladder Strategy)(see Disclaimer): This brings me to three RRD bonds, and that is my limit.  RRD, a commercial printer, is a big fish in a declining industry. It has a lot of debt (3.42B as of 9/30/11), and most of it will have to be refinanced between 2014 to 2021: 


Form 10-Q at page 19. RRD did float $600M in senior unsecured notes with a 7.25% coupon back in May 2011, Final Prospectus Supplement.

Another issue is that RRD's pension plan is underfunded by $700M.  

The market did not respond well to RRD's guidance for 2011, released on 1/16/2012: Press release Sales and margins were forecasted below analyst expectations. WSJ 

Given the earnings prospects and debt load, I believe that RRD needs to substantially reduce its leverage by paying down debt, possibly by as much as 1B, using all of the cash now devoted to the common stock dividend and share buybacks. The common dividend is $1.04 annually. The bond market is giving the company a serious warning now.  

According to FINRA, this bond is currently rated Ba1 by Moody's and BB+ by S & P. FINRA However,  the current yield and YTM for this bond is substantially higher than other BB rated debt, and is higher than the average "B" rated debt, suggesting that the market has already priced into this bond at least one, and possibly a two notch downgrade.

I performed a simple analysis of Ba1 rated bonds maturing in 2021. This is some of the comparisons that I found:

Limited Brands 6.625% Maturing 2021: FINRA
Ball Corporation 5.75% Maturing 2021:  FINRA (less than 5%)
Ford Motor Credit 5.875% Maturing 2021: FINRA (less than 5%)

Each of those bonds are similarly rated and yield less than 6% on a YTM basis. This kind of analysis suggests that the current ratings for RRD bonds are not correct and need to be lowered by the rating agencies.

For comparison, my confirmation of this bond purchase states that the current yield at my cost is 9.492% and the YTM 9.97%.

I have seen this kind of divergence on several occasions and it was an ominous omen. I noted a significant yield divergence in CIT debt issues in 2007 compared to other similarly rated issues. CIT would later declare bankruptcy. A similar divergence was noted for American General Finance bonds in 2007. One of RRD's bonds automatically increases the coupon for downgrades (11.25% 2019 note, Prospectus, increased to 11.75% in May after a debt downgrade). Unless the company starts to make more prudent allocations of its cash flow by reducing leverage, I would anticipate at least one more debt downgrade, which is what the market is forecasting now based on the yield divergence.

This RRD bond, bought at 92.69 last week, was trading near 110 last June.

The common stock of R.R. Donnelley & Sons fell 57 cents last Friday to close at $12.44. The 52 week low is $11.24.  

2. Sold 50 CSCO at $20.4 Last Wednesday-Satellite Brokerage Account (Large Cap Valuation Strategy)(see Disclaimer): I have sold some CSCO shares just before an earnings announcement and then bought them back thereafter. SOLD 50 CSCO @ 24.42 (Nov. 2010)- Bought CSCO at 20.39 (September 2010); Sold Cisco Market Close at $24.31 (August 2010)- Bought 50 CSCO at $22.45 (June 2010). I made a negligible profit on the shares sold last Wednesday, having bought them at $18.75 almost one year ago.  After that purchase, the stock skidded badly again, falling to below $14 per share in early August before starting to recover. CSCO Historical Prices 

Last Wednesday, with Cisco reporting after the close, I sold 50 shares at $20.4 and hope to buy them back at a lower price sometime later. If that opportunity is not given to me, I am certainly okay with that result too. While I will invest up to $10,000 in the common stock of a company like Coca Cola, I am not likely to ever risk more than $3,000 in CSCO and will be content to trade that stock for relatively small gains. As a result, I have not yet lost money in this name, and this stock has never been a material position for me. I still own 50+ shares held in another account where I am reinvesting the dividends. I will likely buy back the 50 shares in that account soon.     

Cisco did report better than expected revenues and earnings for its second fiscal quarter ending 1/28/2012. Cisco reported a GAAP E.P.S. of 40 cents and an adjusted E.P.S. of 47 cents per share on a 11% increase in net sales to $11..5B. SEC Filed Press Release The consensus estimate was for a Non-GAAP E.P.S. of 43 cents. The Board also increased the quarterly stock dividend by two cents per share. Cash and cash equivalents were $46.7 Billion at the end of the quarter.  Net of debt, Cisco has $30.4 billion in cash and investments or $5.64 per share.  But only $5 of the cash is in the U.S.

CSCO estimates that it will report adjusted E.P.S. of 45 to 47 cents for the current quarter, with year-over-year revenue growth between 5% to 7%. Gross margin is expected to be in the 61.5% to 62% range, down from 62.4% in the second fiscal quarter.

Tiernan Ray summarizes some analyst comments on this earnings report in his Barrons blog.

Cisco Systems closed at $19.9 last Friday.

3. Bought 100 MPW at $9.9 Last Wednesday-ROTH IRA (see Disclaimer): Medical Properties Trust is a REIT that owns healthcare facilities. Profile Since REITs pay either no or negligible qualified dividends, I bought this security in the ROTH IRA, where the 8+% dividend becomes in effect a tax free dividend. The current quarterly dividend is 20 cents per share.

Holding this security in a taxable account would lower my yield after tax, since all or virtually all of the dividend would be taxed at my highest marginal tax rate. While Tennessee does not have a state income tax on earned income, it does levy a 6% income tax on dividends and interest, after a standard deduction, which would reduce my after tax yield even further. When held in the ROTH IRA, I eliminate both current and future taxation of those distributions, at least under current law which may change of course.

In MPW's Key Development's page at Reuters, I noticed that this company had just sold some senior bonds and common stock to finance the purchase of 16 hospitals from Ernest Health. The stock was sold at $9.75 per share.

The stock experienced a sharp downturn starting in late July 2011: MPW Stock Charts  After closing at $12.47 on 7/22/2011, the stock price sank quickly to $8.92 (earnings for the 2nd quarter were released on 8/4/11:  SEC Filed Press Release)

After a brief rally back up to $10.74, the stock quickly sank again to $8.39 and has steadied since that time with a slight upward bias, hitting $10.72 on 1/31/2012, whereupon it slid again after announcing the acquisition and the stock offering. Medical Properties Trust Announces Public Offering of Common Stock

10-Q for the Q/E 9/30/11
10-K for 2010

Medical Properties Trust closed at $9.84 last Friday.
Posted by at 5:53 AM 0 comments

Saturday, February 11, 2012

GATEWAY POST: Main Table of Contents

It is better to use the search box to the right to find information in this blog rather than the box at the top left hand corner.
For any new readers, RB stands for my Right Brain and LB for my Left Brain, both in a constant state of discord. The Headknocker (HK), the ultimate boss here at HQ, sometimes referred to as the Great Leader with a tinge of sarcasm, is exactly what the name describes, a real hard case, a more enhanced and older version of the young LB sometimes pictured in the profile section of the post. The LB still believes it is 16 years old (or not a day over 21), with a lot of hair, capable of running a mile without drawing a deep breath, without an ounce of body fat, referring frequently to itself as the Young Stock Stud. The LB is the only Focus Machine at HQ.

The Old Geezer (OG) is a more mellow version of the HK, who reads theology and philosophy, and who is at least willing to listen to the RB, but frequently is subject to a case of nerves which has never afflicted the HK for even a nano second. The HK frequently sends the OG to the Old Folks Home for one or more transgressions involving a failure to advance HK's capital position as Head Trader, which is rarely important to the OG, but is the only important matter to the HK.

All of these characters are caricatures of different personality traits of one individual investor, who is finely attuned to all of their voices, now in his fourth decade of managing his own money.

The left brain (LB) is serious, rational, logical, analytical, organized and highly focused, a linear thinker absorbed with details and looking at the parts rather than the big picture. The right brain (RB) is the antithesis of the LB. The RB is subjective, intuitive & led by feelings, impulsive, creative, emotional, unfocused, and capable of seeing the big picture unlike the LB.
Most of these discussions, involving these personalities and brain characteristics, are intended for instructional purposes, and sometimes for humor. The topic of the role played by the brain structure in making investment decisions is explored in Jason Zweig's book : " Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich" Zweig would call my LB the reflective brain and my RB the reflexive. The reflexive brain gets the first crack at decision making, often the only crack for many investors, which would be viewed as a mortal sin here at HQ.

Being a prolific and wordy writer, this blog has expanded in a short time to over 1000 posts since October 2008, 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 rather than the search box at the top left hand side.

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 a list of the preferred stocks that pay qualified dividends under current U.S. tax law.

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.  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.


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

Gateway Posts for Asset Allocation Theory and Practice:
VIX ASSET ALLOCATION MODEL:USING THE VIX MODEL AS A TIMING INDICATOR FOR LONGER TERM STOCK ALLOCATIONS: The market has been in an Unstable Vix Pattern since August 2007, viewed as a dangerous market for most individual investors and all investors facing significant situational risk.


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

Stocks for the Long Run and Professor Siegel:  To Professor Siegel: Time for a Re-Think  The Roller Coaster Ride of the Long Term Secular Bear Market  Duality of Long Term Risks Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets  1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? More on 1982 or 1974  Continued Discussion on 1982 or 1974  Historical VIX Patterns The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets LONG TERM SECULAR BULL PATTERN 1950 TO 1966/ Long Term Secular Bear Pattern from The Great Depression VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern Static v. Dynamic Asset Allocation Instability & Volatility in Asset Correlations


Gateway Posts for Bonds, Preferred Stocks and European Hybrids:


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

ING PREFERRED (Hybrid Securities): ING HYBRIDS: Links in one Post











ETC:

Last Update of Table 12/23/2011: Snapshot in Item # 4  Regional Bank Basket Table   Realized Gains Regional Bank Basket Strategy 

There are well over a 1000 posts in this blog and the foregoing are just some of the major stock and bond topics.
Posted by at 7:25 AM 4 comments
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