Friday, April 17, 2009

Bought 50 DKK in Roth/ SOLD EMO/GE/RF Dividend Cut/GOOG/FHN/ Redemption for Underlying Bond in AT & T TCs?/

GE posted better than expected earnings at 26 cents versus the expectation of 21 cents.    Still, this was a slide of 36% from a year ago and simply shows that the company was able to beat lowered expectations.  Revenues fell 9%, with every division other than energy infrastructure suffering a decline, although the technology infrastructure and NBC Universal businesses were close to flat year over year in revenus.  The finance division, which has been the main source of problems, did earn a profit of 1.12 billion.  GE maintains that GE Capital will not need more capital, even under a worse case scenario under the stress test. GE Reports 1Q '09 EPS of $.26; Technology & Energy Infrastructure Earnings +11%; Capital Finance Earns $1.1B in 1Q '09; Total Backlog Stable at $171B - Yahoo! Finance

While Google did beat the consensus earnings estimate, revenues rose only 6.2% from the year ago quarter and declined 3% from the prior quarter.  I would anticipate that revenue and earnings growth will pick up as the economy recovers but still Google is running into the law of large numbers. It is still a cash machine, and I will keep my shares. Google Announces First Quarter 2009 Results - Yahoo! Finance

I neglected to mention in a post from yesterday that I also trimmed one-half of my short term bond position in Bank of America.  That was fortunate, since the bond sold was liquidated at near par value while the one held slid thereafter to 78% of par value.

I said in an earlier post that I did not understand why people classified torture as a conservative value.  
 The Obama administration released memos of the interrogation techniques approved by Bush that are without question torture in my opinion.  NYTimes.com  
It is unfortunate that millions of "conservative" Americans support torture. To avoid saying that they approve of torture, they instead create a definition of torture consistent with practices in medieval times, and then argue that the "enhanced interrogation" techniques approved by Bush fall short of those practices, so voila those practices are not torture.  It is just inconvenient for them that the U.S. has prosecuted others for engaging in the practices condoned by Bush including Japanese in war crimes trials after WWII.  The legal opinions providing cover to Bush for torture were provided by John Yoo who now teaches law at Berkeley. John C. Yoo News - The New York Timeswashingtonpost.com:


The Barron's technician makes his case for the rally running out of steam in this article. Barrons.com

Although Regions Financial (RF) has just about doubled from my recent lottery ticket purchase price, and my stake in this bank is less than meaningless, I still do not like having my dividend cut from a mere 10 cents to 1 cent.Yahoo! Finance  As with other announcements of this sort, management expressed deep sorrow but said nothing about taking a pay cut for themselves.  There is certainly no sense of shared sacrifice in America's Board rooms.

First Horizon, owner of the largest bank in Tennessee, posted a 65.1 million loss for the first quarter, continuing its losing streak.  The bank went national on its mortgage business in the mid 1990s and paid a huge price for that move over the past two years. I do not own shares in FHN.   

I am at a loss to explain why AT & T has not refinanced the underlying bond in the two TCs that I own JZE and JZJ.   Since I bought JZE at 1/2 par value, I am content to hold it until maturity in 2031 for the income that it will throw off plus a 100% return on the security.  But, as I said in many posts discussing those two TCs,  the underlying bond has a guaranteed coupon significantly higher than the two TCs at 8% and the coupon can be increased by 1/4% for each downgrade in the debt.  The TCs have the same enhancement feature but a lower guaranteed rate. This bond was issued by the old AT & T, the pure long distance company,  before it was acquired by SBC.   The new AT & T is an amalgam of two baby bells, SBC and Bell South, and the old AT & T and has a higher credit rating than the old AT & T.   I do not know for certain of course, but I suspect that AT & T could refinance this bond now at a materially lower rate without the unfavorable to it enhancement feature.  The enhancement feature can only increase the coupon now since the guarantee was hit after several upgrades in the debt which caused 1/4 declines from the original yield.  If the underlying bond is called, then the TCs that I own will also be redeemed at par value, something that has happened to me in the past.   

I try to keep my allocation in my retirement accounts fairly constant at a 60% stocks and 40% bonds.  I just checked the balance and the stock portion has risen to 70%.  This is partly due to the rally since early March, but I also added some stocks like DuPont which has had a big spurt over the past 4 weeks.    As a start to restore the balance, I added this morning 50 shares of DKK, a TC with an AON junior debenture as the underlying security.  The coupon on this TC is 8% and it has a $25 par value.  Interest is paid semi-annually. Maturity is in 2027.  The yield at my price is around 11.75% plus another 2.47% annually or so from the amortization of the spread which will be captured of course only if Aon pays par value at maturity or early redemption.  I believe that the only AON (common: AOC) TC that has the same coupon as the underlying bond (8.205%) is KTN which I bought at a favorable price of less than $14 on two occasions last quarter. GRTPRF: A WALK ON THE WILD SIDE/ KTN add  TRUST CERTIFICATE AON BOND KTN ORDER FILLED  DKK is basically the same as KVW which I already own but DKK was selling at a cheaper price this morning.  I previously bought KVW at a lower price but I have 100 shares of KVW purchased at a higher price than the DKK purchase today.  I may at some point sell those higher cost KVW shares and keep the DKK purchased today.  The Aon TCs KVW, KTN and KVF are discussed in this post.  TRUST CERTIFICATE AON BOND KTN 
The links to the prospectuses for all four TCs containing this AON bond as the underlying security can be found at this post.  Links To Prospectuses for the AON TCs in One Place
This is a link to the DKK prospectus:
My discussion of trading functionallly equivalent securities can be found at this post:
Some other discussions about these TCs can be found in the following posts:
DKK does have a different ex interest date than KVW.  It will next go ex around mid June whereas KVW goes ex later in June.  I believe the last order on KVW was filled at around 16 shortly before this blog was started, and I do not currently own KVF which has been successfully traded for profits.   KVF has the lowest coupon but it had the highest yield based on price at several junctures last quarter where it was the best buy.  

To re-establish the 60/40 allocation in the retirement accounts, I will sell one or two closed end investment companies that invest in stocks, and then add a floating rate bond.  And, the small amount of cash remaining in the Roth account will be invested in a floater.  I see no reason to sell DuPont bought at $16.68 as long it maintains its dividend. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology  AT & T was bought 3/4 in that account at 23 and change so I would not want to sell that one either as long as the dividend is maintained since the dividend yield for both the DuPont and AT & T buys are bond like, close to 10% for DD at my $16.68 price and over 6% for AT & T. 

As part of the movement out of long term fixed rate coupon bonds into more floaters, I sold my position in EMO at $24.5 that was bought last quarter at 22 and change somewhere.Buys of a First Mortgage Bond EMO and a JPM TC PYV 
I will keep the EHL first mortgage bond which has a higher coupon and bought at 22.75. Notable News 10 22 2008 & END OF DAY TRADES (IR, INTC, TE AND EHL)
I believe that I have received two interest payments on these bonds so far since they pay quarterly.  If inflation starts to rear its head in a year or so, a long bond paying over 7% may not look so hot.   So, I am adjusting my mix in the bond portfolio just in case I am right about inflation dangers ahead. 

I have one limit order in place for another floater which I am not likely to see filled today.  I am also considering increasing my bond allocation to 60% in the retirement account over time as stocks recover.  It does make more sense for me to put bonds in the retirement account due to the way they are taxed, at least for now, compared to common stock dividends.

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.

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